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Tax considerations of international divorces

| Rebecca Bright | 4 September 2023

Whether you or the person you married is a resident of a different country, or if you have moved to another country during your relationship or since the relationship ended, there are some important financial considerations when going through a divorce.

While divorce is never an easy time, with a little planning, it is possible to lessen its financial impact, even if you live in different countries.

Tax residency and the division of assets

If couples are internationally mobile and regularly move from country to country, then the country of tax residence needs to be considered when calculating potential tax liabilities on the division of assets.

This can be complicated if there’s a possibility that the two parties in a relationship are residents of different countries at the point at which assets are to be transferred.

At this stage, the tax regimes in each potential country of residence of the parties should be carefully reviewed. If a lower overall tax bill might arise in a particular country of residence, and the practicalities can be negotiated, it may be worthwhile for the individuals to consider relocating temporarily for tax purposes

Capital Gains Tax considerations in international divorce

In the UK, the profit from the sale of an asset that’s increased in value is generally subject to Capital Gains Tax (CGT). However, there are some important rules and exemptions which should be considered during a divorce:

  • Up to and including 5 April of the tax year of separation, couples can transfer assets on a nil gain/nil loss (NGNL) basis between them, without any CGT charges arising
  • After this date, assets are deemed to be transferred at market value, potentially triggering tax charges
  • After the tax year of separation, when assets are transferred at market value, this could result in a loss and there may be restrictions on how those losses are able to be used to reduce tax liabilities
  • The CGT rates on disposals of assets are 10%/20% on non-residential property assets, or 18%/28% on residential property assets, with the rates depending on the parties’ other income level in the year.

The important point to note is that, if UK tax residence is to be taken up, the individual is subject to UK tax on their worldwide income and gains, not just their UK income/assets. It is important, therefore, to consider the total tax charges.

Non-Dom status and divorce

If the parties to the relationship were not born in the UK, it is possible that they may be able to claim non-domicile status. If they can claim this, they will only be subject to UK tax on UK income and gains, provided they don’t remit any overseas assets or income to the UK while they are a tax-paying UK resident.

This is a very complicated regime, and detailed advice should be taken to see if this is appropriate in your circumstances.

If you are going through a divorce and either of you have assets or property in the UK, please contact our team for professional advice and assistance.

The information contained in this article is for guidance only and reliance should not be placed upon it without seeking professional advice first.


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