CheckLists.Tax (beta)
W3. Divorce
INCOME TAX
Maintenance payments
- Exclusion from charge for maintenance payments
Maintenance payments by UK resident individual
- Excluded from charge as annual payments under ITTOIA s.727.
Maintenance payments by non-UK resident individual
-A maintenance payment arising outside the UK is exempt under s.730.
- Maintenance payment means (s.730):
(1) Payment under a court order or written or oral agreement.
(2) Payment is made by a person as party to marriage/former marriage or civil partnership, or for the benefit person under 21 for their maintenance.
- Exclusion continues to apply to payments made by personal representative (s.730(6)).
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Settlements: attribution of income to settlor
- Former spouse not taxed on income of settlement making provision for former spouse even if interest is retained
- Attribution rule does not apply to income which (ITTOIA s.627(1)):
(1) Arises under a settlement made by one party to a marriage/civil partnership;
(2) Was made by way of provision for the other after dissolution/whilst separate where likely to be permanent.
(3) The income is payable to/applicable for the benefit of the other party.
- This exclusion applies even if settlor retains an interest in the capital of the settlement (e.g. trustees can appoint capital to settlor).
- Query whether the exclusion applies where interests under an existing trust are adjusted upon separation/divorce (see Chamberlain, §11.16).
Legislation: ITTOIA s.627;
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CAPITAL GAINS TAX
Section 86 attribution of trust gains to settlor
- No attribution of gains to settlor by virtue of interest of individual ceasing to be defined person by virtue of divorce (including pre-divorce gains in the tax year)
- Section 86 does not apply if the settlor only has an interest by virtue of a certain individual being married to a defined person and that individual divorces the defined person in the tax year (Schedule 5, para 4).
Legislation: TCGA, Schedule 5;
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PENSIONS TAX
- Assignment of benefits or rights under pension scheme as unauthorised payment unless under pension sharing order
General rule
- If a member assigns or agrees to assign any benefit to which they have an actual or prospective entitlement under the pension scheme, there is a deemed unauthorised member payment (s.172).
- Same applies if member assigns or agrees to assign any right in respect of any sums or assets held for the purposes of the scheme.
- Based on the greater of the sum received for the assignment and arm's length value (s.172(5)).
Exceptions
- Assignment pursuant to a pension sharing order (s.172(2)).
- Excluded pensions (see s.172(7)).
Legislation: FA 2004, s.172;
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