I recently wrote about the main Swiss tax implications of separation and divorce for couples resident in Switzerland, out of which a very large percentage are foreigners with a UK background. That article is available here.
In addition, if you were previously UK resident or still have connections to the UK, you should note that there could also be additional UK tax implications of separation and divorce.
Furthermore, the UK tax rules are quite different, and even if you are not resident at the time of separation or divorce, this can still impact your UK tax situation. For a start, in the UK individuals are taxed independently, unlike Switzerland, have their own personal allowances and the tax rate bands are based on their own income.
Here I provide you with an overview of some of the key UK tax implications of separation and divorce.
Timing matters (temporary non-residents)
The UK capital gains tax (CGT) aspects are interesting. Normally, the UK does not levy CGT on non-residents, except when there are disposals of UK residential property (see below) or business assets. This could lead you to think that you had somehow escaped the UK tax net if you disposed of assets whilst being a non-UK tax resident.
However, if you have been out of the UK ‘temporarily’ and disposed of assets acquired when you were UK tax resident, you could be caught by some special anti-avoidance rules, which means that you would be taxable upon your return to the UK.
Broadly, a person is considered temporary non-resident for UK tax purposes, if at the time of departure from the UK, they had been solely resident in the UK for at least four of the previous seven years and they return to the UK within five years or less.
UK residential property
Since 6 April 2015, UK residential property is charged to CGT irrespective of the individual’s tax residency status. The tax rates applicable on chargeable residential property gains can be as high as 28%.
Of note is that it is the gain arising after 6 April 2015 that is taxable. Some manual tax calculations are therefore inevitable and there are a few ways to determine this. Iit is important to use the most beneficial approach to ensure you minimise any potential UK capital gains tax payable.
And finally – UK Inheritance Tax
Bear in mind that individuals considered UK domiciled are subject to IHT on their worldwide assets. The rules are different from those for UK income tax and CGT, and in particular requires greater consideration where one spouse is UK domiciled and the other is not.
This area is complex, so you should definitely seek advice.
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.