The Autumn Budget and the effect on Separating Couples

Capital Gains Tax

The budget saw a significant change in Capital Gains Tax (CGT). CGT is a tax on profit that is made when selling an asset that has increased in value. The basic rate will increase from 10% to 18% and the higher rate will increase from 20% to 24%. The increase in CGT means that couples who are in the process of dividing their assets may face higher taxes when selling properties or investments. For example, couples who own second homes, rental properties, investments and shares will be affected. The rates in respect of residential property, including the former matrimonial home remain unchanged.

The higher CGT rates will mean assets belonging to the matrimonial pot that are sold during or after the financial settlement, will be taxed more heavily. The outcome of this will mean the net proceeds from these sales will be lower, thus reducing the total amount of assets available for division between a couple.

If you are currently in negotiations, it is important to seek financial advice alongside legal advice to fully understand how the tax increase may impact your settlement. In some cases, it may be appropriate to make adjustments before finalising the terms of your settlement.

Stamp Duty

Stamp Duty Land Tax must be paid when purchasing a property or land over a certain price. The rates will vary depending on whether you are a first time-buyer or purchasing a second property. Stamp Duty is not increasing on primary residences, however it is increasing on additional property purchases from 3% to 5%. This increase may impact couples going through a divorce who need to purchase new homes. For those moving out of the matrimonial home and buying a property of their own, the higher rate of stamp duty could create additional financial strain. This may discourage some people from buying a new property, leading them to consider renting as a temporary solution. The shift in housing plans could delay property transactions and alter how couples manage their living arrangements post-separation.

VAT on Private Schools

The Government previously announced that private schools would be losing their VAT exemption. This was confirmed in the budget and from January 2025, private schools will be taxed VAT at 20%. As a result, it is likely private schools will have to increase their fees to account for the reinstated VAT.

Where a child attends private school, separating couples should always include the fees as part of their financial settlement. With the expectation that fees will rise, parents will have to consider whether private school will still be affordable.

Where an agreement cannot be reached in deciding whether or not a child should remain at private school, either parent may need to apply for a Specific Issue Order to ask the court to decide which school the child should attend. Ultimately if the increase in school fees leaves the couple with insufficient funds to be divided, a judge is likely to determine a child should be placed in state education.

If you are currently going through a separation, it is important to seek both legal and financial advice to understand the potential implications of the Autumn Budget on your financial settlement.