On 28 October 2026, Chancellor John Healey delivered his first Budget before Parliament. Every Budget tends to throw up headlines about changes to rates and reliefs, however for anyone going through a divorce, particularly one involving companies, there were some technical changes that might have a practical impact on the approach taken to their settlement and, in particular, the value attaching to any company.
Why tax on divorce matters
The value of a spouse’s shareholding is often the headline figure that attracts attention in a divorce. However, the value of the shares is only part of the picture and of just as much importance to the eventual settlement is often how money can actually be extracted from the company and what tax would arise in doing so. These points can combine to narrow the scope of the company interest. Those factors can lay a trail of breadcrumbs towards a particular solution. They may point towards payments being spread over several years, allowing funds to be extracted gradually. Alternatively, it may be preferable to accept some tax cost in order to achieve an earlier clean break and provide the couple with closure.
The lowering of the BADR threshold
From 6 April 2027, the lifetime limit for Business Asset Disposal Relief is due to halve from £1 million to £500,000. The rate remains at 18%. This potentially increases the CGT payable on the realisation of a gain. At its maximum, that could mean an additional £30,000 tax liability. In a case where the net assets are ultimately being divided equally, the effect could be a settlement of £15,000 less for each spouse.
Anyone relying on a company valuation prepared before the Budget needs to consider asking the accountant who prepared it whether the change affects their figures, particularly where the assumed extraction or disposal will take place after 6 April 2027.
Founders’ Relief
The Government has proposed that CGT of just 10% could be made available to up to £10 million of lifetime qualifying gains for disposals from 6 April 2027. The number of entrepreneurial businesses who have built substantial value in those businesses during a marriage is significant, and this change could make a big difference to the tax assumptions underpinning the calculation of realisable value of a qualifying business interest on divorce.
The detailed qualifying conditions of this relief have yet to be confirmed. In divorces that are still at an early stage, this uncertainty may affect the timing or scope of any forensic accountant’s instruction. The letter of instruction might specifically ask the expert to consider the potential impact of Founders’ Relief, where relevant, and identify the qualifying conditions they have assumed will apply.
The importance of timing
The above changes are proposed to take effect from 6 April 2027. That creates an obvious timing issue that needs to be factored in when looking at the order of any implementation events and the realisation of a company interest. It is quite possible that implementing part of a settlement before 6 April 2027 could produce a materially different tax outcome from implementing it after that date. As has been necessary in previous years following Budget announcements, advice should be taken from an accountant as to whether there would be any merit in pressing for a pre-6 April 2027 extraction of funds or whether it is preferable to hold out until after the tax year end to undertake that extraction.
There is no one size fits all approach to this, and it is important that the impact of these changes is looked at in the context of your specific situation. What is common to all cases is the need to seek the most up-to-date advice. Particularly if a business features significantly as part of a divorce, the tax assumptions underpinning its value could make a significant difference.