What is separation for tax purposes? article banner image

The date a couple separate can often prove crucial when dealing with tax issues arising from a divorce.

If there is a transfer of property between the couple after the end of the tax year in which they separate, this can bring with it a significant capital gains tax bill that is often best avoided.

If the tax bill can be saved, it has the potential of increasing the assets available for distribution and potentially unlocking routes towards a settlement that would not have otherwise existed.

The question will therefore arise as to when the couple separated.

For tax purposes, HMRC will treat a couple as living together unless:

• They are separated under a court order, or
• They are separated by a formal deed of separation, for
• They are separated in such circumstances that the separation is likely to be permanent.
It is in respect of this last point that there is often some ambiguity.

If a couple separate and later reconcile with a view to trying to resolve their differences and avoid a divorce, this raises a question as to whether the initial separation was likely to be permanent. If such reconciliation does take place only to later fail, is it the first separation or the second one that is the relevant one?

The permanence of the separation is often crucial, together with the question as to whether the marriage has actually broken down. A couple might choose to live in separate houses but not consider their marriage to have broken down, for example. In that situation they could be regarded by HMRC to be living together for tax purposes.

It is with a view to addressing concerns such as these for HMRC purposes that we often advise that evidence is collated of the attempted reconciliation as far as is possible. If ever these issues arise or there is even the remotest risk of them arising the best advice is often to take advice. The implications of not doing so can be significant.

Andrew Barton is a partner in the Stephens Scown Exeter Family solicitors team and a Resolution Accredited Specialist in complicated financial matters arising from divorce. He regularly advises clients in relation to pre-nuptial agreements, as well as divorce and financial matters.

Stephens Scown has offices in Exeter, Truro and St Austell. Its top-rated family team advises clients on a wide range of family law issues including divorce and family finance. To contact Andrew, please call Exeter 01392 210700, email solicitors@stephens-scown.co.uk or visit www.stephens-scown.co.uk