Labour’s first budget in 14 years was delivered on 30th October 2024, bringing in significant changes for tax particularly. But what does this mean for family law, and people going through divorce and relationship breakdown?
Capital Gains Tax
One of the biggest changes for couples going through divorce is the increase to Capital Gains Tax (CGT). From the end of October 2024, the tax rates will have increased from 10%-18% for basic rates taxpayers, and 20-24% for the higher rate taxpayer.
This significant rise is likely to impact a wide spectrum of couples who have assets where CGT will be applied upon sale. For example, couples with investment properties, second homes, stocks outside Isas and even collections of jewellery or artwork will be affected.
The increased rate will mean any assets sold as part of the financial agreement will be subject to more tax. This reduces the overall profit from sale, shrinking the matrimonial pot and therefore how much is available to share between the separating couple.
Where couples are amid their financial negotiations, it is best to seek expert legal and financial advice to fully understand the effect that this change might have, and where adjustments might need to be made before making a final settlement.
If the ex-couple has finalised their financial consent order and it has been approved by the court, unfortunately the agreements made within this settlement will be legally binding. Once a financial order is made by the court, it is extremely difficult for it to be amended, so the ex-couple may be faced with less income from yet-to-be sold assets.
If you are already divorced, with a financial settlement in place, you may be able to make an informal agreement with your ex-spouse based on the updated income you are likely to get from CGT-applied assets. However, your legal arrangement will still stand. If you have concerns, please contact an expert financial adviser.
Inheritance Tax
In the weeks leading up to the Budget, the media reported a number of expected changes around inheritance tax. However, the Chancellor announced that inheritance tax rates would continue to be frozen for the next two years.
Although this does mean no change yet to lower the nil-band rate, the further freeze will mean that an increasing number of people will be subject to greater tax liability as the value of assets increases over time. This therefore means their beneficiary receives less in the way of inheritance.
Please speak to an expert financial adviser
Private School VAT
From January 2025, the VAT exemption currently applied to private schools in England and Wales will be removed, meaning some schools may have to increase their fees. This could well have a direct impact on divorced couples, and those currently negotiating settlements. Where private schools feature, fees should always be included as part of a settlement. However, if these fees rise by 20% because of the removal of the VAT exemption, further negotiation may be required.
It is important to note that if the rise in school fees means there is not enough money to share between the separating couple, a judge is likely to require that the children be moved out of private education.
Parents who have sealed agreements will be bound to these, although it may be possible to make an informal arrangement and ask the non-paying parent for more money. Where this is refused or impossible, children may need to be moved into state education.
Conclusion
If you are currently going through divorce, please seek expert legal and financial advice to understand the potential impact of the autumn budget on your negotiations.
If you struggle to make progress in discussions with your ex, mediation and other non-court resolution methods can be very helpful. Talk to an expert family lawyer about your suitable options.
Useful Links
How to protect your money during divorce
Private school fees after divorce
Do I need a financial settlement?
