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Transferring Business Assets On Divorce

HMRC changes guidance ...

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POSTED BY HELEN BEAUMONT ON 28/10/2020 @ 8:00AM

HMRC recently issued new guidance on their views on reliefs available when transferring business assets on divorce. This could mean larger Capital Gains Tax liabilities ...

The guidance around transferring business assets on divorce has changed!

The guidance around transferring business assets on divorce has changed!

copyright: bartusp / 123rf

HMRC used to say that when couples divorce and business assets transfer between them, Gift Relief would be available to defer any taxable gains on the transfer. This means both parties would have to agree to the claim and any liability would transfer to the individual receiving the asset.

"They would agree to pay any tax when they sell the asset in future!"

Take, for example, a husband and wife working together in a limited company. They both own 50% of the shares, they separate and the wife stops working for the company. As part of the divorce settlement, the shares are transferred to the husband. On a business worth £1 million, half the shares would be £500,000 which means the wife would have a Capital Gains Tax liability of £100,000 at 20% rate. The tax would be due by the 31st January following the end of the tax year of the gain.

The old guidance HMRC issued means they could have made a Gift Relief claim on the transfer, moving the Capital Gains Tax liability from the wife to the husband if he were to sell the shares in future. Gift relief is designed to ensure people who gift business assets don't suffer a tax charge when they have no cash to settle any liability.

However, HMRC's new guidance has changed that. Citing a case of Haines vs Hill (2007), HMRC now says that assets transferred on divorce mean the transferee (in this case, the wife) is liable for Capital Gains Tax for the value of the shares she transferred to her ex-husband. In our example, she would still owe £100,000 even though she hasn’t received the £500,000.

"Remember, HMRC guidance is not law!"

The actual tax laws around gifting and Capital Gains Tax hasn't changed. It may be worthwhile challenging their view on transferring business assets on divorce if you are in this situation. It's far better to do it at the beginning of a divorce to understand who will owe what, who will be liable for Capital Gains Tax and how much that will be once the divorce has gone through.

Until next time ...



HELEN BEAUMONT

 
 



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About Helen Beaumont ...

 

Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.

Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.

When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.