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TaxVince
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Category: UK Tax
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Experience:  Chartered Accountant >20 years + Qualified IFA
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Is tax payable on a cash settlement in a divorce please?

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Is tax payable on a cash settlement in a divorce please?

MamaTax :

Hi Its MamaTax Here!

MamaTax :

Thanks for the question.

MamaTax :

Could you please tell me more about the divorce and the terms thereof?

Customer:

Have been offered £100,000 cash settlement and part of pension pot. Separated five years ago, now each own home. Would like to know what tax, if any, would be due on the cash settlement please.

MamaTax :

Where the transfers made after Decree Absolute?

Customer:

Offer has only just been made, hasn't yet gone to court. Have only had initial consultation with solicitor.

MamaTax :

Transfers between spouses (as long as you are still married) is treated at market value as you are still considered connected> However post Decree Absolute, this is treated as transfers from a third party. Therefore, any transfers are no longer deemed to take place at market value and gains or losses are, instead, calculated based on actual consideration received. However either of this should not concern you as you are receiving the funds. The person who needs to worry about tax implications is the giver not the recipient.

MamaTax :

Therefore on your part as recipient there are no tax implications, however any acquistions of assets /pension (other than cash) etc is treated as acquired at market value. On subsquent sale of assets, the market value at transfer would be the basis for capital gains.

Customer:

Erm.. sorry to be so thick, but does this mean I will or will not pay tax on the cash settlement please?

MamaTax :

There is no cash paid on the cash settlement.

MamaTax :

There is no TAX sorry

MamaTax :

There is no tax paid on the cash settlement.However depending on the stage of the divorce if the settlement is done after Decree this will be treated as a potentially exempt transfer..meaning that in the case of death of the person giving the cash within 7 years, inheritance tax will be paid. To read more about this see HERE - last par.

MamaTax :

Otherwise there are no tax implications for you.

Customer:

Thank you.

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