Potential changes to property taxation, rumoured ahead of the upcoming Budget, could have a significant impact on divorcing couples, particularly those in London and the South East where property values are higher. In this article, first published in This is Money, Adrian Clossick, Partner and Head of Divorce and Family Leeds explains what the changes might mean for couples negotiating divorce settlements.

What changes are being discussed?

There is speculation that the Government may introduce a ‘mansion tax’ by increasing Council Tax on high-value homes, specifically those in bands F, G and H. Another proposal under discussion is a new national property tax on the sale of homes worth more than £500,000. In addition, the removal or reduction of the Capital Gains Tax exemption for gains on high-value family homes is being considered, with thresholds ranging from £500,000 to £1.5 million reportedly suggested.

How could this effect divorcing couples?

These potential changes could make divorce settlements more complex. Higher Council Tax would reduce disposable income and increase financial pressure. For those wishing to remain in the family home, the financially weaker spouse may need additional maintenance or capital to cover increased tax liabilities. Future tax charges would need to be factored into negotiations to avoid unexpected costs later.

Adrian says, “If the financially weaker spouse wants to stay in the home, they will need to be alive to the fact they may now need a lot more money to meet any excess tax. That may mean they need more maintenance to meet higher council tax charges or that they need more capital to pay tax if the house is subsequently sold and exemptions no longer apply.”

Recent tax reforms offer some relief

Tax reforms introduced in April 2023 allow divorcing couples to defer tax until the property is sold rather than paying immediately upon divorce. However, this flexibility does not eliminate the need to plan ahead. Couples must still consider future tax implications when agreeing settlements to prevent unpleasant surprises down the line.

Conclusion

Adrian concludes: “It is therefore hoped that tomorrow’s Budget brings some much-needed certainty for divorcing couples grappling with a fundamental decision for them and their children: can we afford to remain in our family home? Without that certainty, already fraught divorce negotiations may become even harder.”

Read the full article here.