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You may have heard that within divorce proceedings a lump sum can be awarded to one party payable by the other as part of a financial settlement, usually to ‘buy out’ one parties’ interest in the former family home. You may have not considered the tax consequences of receiving such a lump sum, however.
HMRC recently updated their guidance manual on Capital Gains Tax (CGT) to indicate that CGT is in fact payable on lump sums awarded in divorce. CGT is a tax charged on disposing (getting rid of) capital assets if a gain was made upon the sale of said asset; it is a complicated topic and can be subject to tax reliefs based on the circumstances in which the capital gain came about.
The HMRC manual suggested that if one party was the sole owner of the family home and paid the other party a lump sum pursuant to a court order within divorce proceedings, the owner of the home would pay CGT once the house was sold but the lump sum recipient would also pay CGT on the lump sum at the point of receipt, essentially double taxing. The thought of a huge tax bill following receipt of a lump sum is enough to put off anyone from seeking a financial settlement.
Thankfully, Resolution a network of specialist family lawyers who promote a cost-effective and wherever possible amicable resolution to family matters brought this immediately to HMRC’s attention. The HMRC guidance has subsequently been amended to reflect the correct position that CGT is not payable on lump sums paid as part of a divorce financial settlement.
Our specialist divorce and family lawyers are all members of Resolution, some are on the regional committee, and we strive to implement the principles of Resolution in our work. George Green can assist with every aspect of divorce and financial settlements. If you require further assistance, or wish to book in for an initial consultation to discuss your situation, our family solicitors are based in Wolverhampton, Cradley Heath and Sutton Coldfield. For all new enquiries, please call 01902 328 365 or complete our online enquiry form and a member of our team will respond.