In this episode, Tamsin speaks to tax expert Matt Stambach from ETC Tax. They discuss all the different taxes that might impact you during your divorce, along with the improved CGT rules for divorcing couples.
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Matt Stambach
Prior to joining ETC Matt developed his career in tax starting at a HMRC Call Centre before gathering practice experience at a small company in Altrincham. From here Matt worked at a Top 20 firm in Manchester before moving on to become Head of Private Client Tax for another Manchester based firm. Matt joined ETC in 2023 where he will assist Angela in her role along with a specific focus on business development, private client compliance function, HMRC enquiries and disclosures.
Tamsin Caine
Tamsin is a Chartered Financial Planner with over 20 years experience. She works with couples and individuals who are at the end of a relationship and want agree how to divide their assets FAIRLY without a fight.
You can contact Tamsin at tamsin@smartdivorce.co.uk or arrange a free initial meeting using https://bit.ly/SmDiv15min. She is also part of the team running Facebook group Separation, Divorce and Dissolution UK
Tamsin Caine MSc., FPFS
Chartered Financial Planner
Smart Divorce Ltd
Smart Divorce
P.S. I am the co-author of “My Divorce Handbook – It’s What You Do Next That Counts”, written by divorce specialists and lawyers writing about their area of expertise to help walk you through the divorce process. You can buy it by scanning the QR code…
Transcript
(The transcript has been created by an AI, apologies for any mistakes)
Tamsin Caine 0:06
Today I’m going to be joined by Matt from ETC Tax. And we’re going to talk all about the taxes that you may need to consider when you’re going through a divorce. Whether it be capital gains tax, inheritance tax income tax, some of these you may not even think you want to be aware of when you’re going through divorce. But getting knowledge and advice and information early on is going to stop you from making mistakes later, and hopefully keep you able to prepare and plan properly. So, with no further ado, let’s jump right in. Hello, and welcome to the latest episode of the smart divorce podcast. I am delighted to be joined today by Matt from etc. tax is a tax advisor. I’m going to let him introduce himself properly. And tell us a bit about where his expertise lies. So Hi, Matt, thanks for joining me.
Matt Stambach 1:08
Hi!
Tamsin Caine 1:09
Do you wanna introduce yourself and tell us a bit about you.
Matt Stambach 1:12
Yes, of course. Yeah. So as Tamsin mentioned, I am an Associate Director here at ETC tax, we’re a specialist tax boutique, supporting both individuals and professional advisors on on complex tax matters. So we really like to get into the into the more complex kind of stuff. As for my background, I actually started my tax career in one of HMRC, whose call centres started there when I was only 18, straight out of college, learn a little bit about tax there, moved over to a firm in in Altrincham, who are no longer actually around, they were they were taken over quite recently. And I was there for eight years did my exams, decided to move on into Manchester to one of the big top 20 firms went a bit more about tax over there, then was given the opportunity to head up the department for a smaller firm in central Manchester, where I quickly became the head of private client tax. They’re leading the private client tax function. So that’s really where my background is in, in people and and their problems rather than corporates and limited companies and so on.
Tamsin Caine 2:23
Perfect, which funnily enough, fits Absolutely, ideally into us. So we quite often get questions about tax in the course of our work as financial planners working in divorce. And I think lots of people get confused about the different taxes and also slightly confused about who does what and when they might need a tax advisor. So we’re going to cover all that today. But if we start off with capital gains tax, because there’s been some massive changes in terms of law around divorce in terms of of this tax. So do you want to start by telling us what the law was in terms of CGT? And how it’s changed? And so what the law is now?
Matt Stambach 3:13
Sure, yeah, I guess whenever anyone’s going through through a divorce, probably one of the last things that I’m thinking about is the tax liability. But it’s very important to be aware of all the factors, particularly the financial factors around divorce, and tax is certainly one of those things. The law changes, as you mentioned earlier, in on the sixth of April 2023. Prior to that, the law, the law was that spouses basically have what’s called the Neal gain nil loss exemption. So if you’re married, you can pass assets between yourself and your spouse, tax free without any any any issues at all. However, when you’re going through a divorce process, in the year it prior to the recent changes in the year of separation, that no gain or loss exemption still applied. So if you are going to try and be as tax planning as possible around your divorce, you would start your divorce on the sixth of April, because that then would have given you until the fifth of April, to sort out to sort out transferring your assets. Now, once you get outside of the separation and the legislation around it is that you have to live with your spouse at some point in the tax year in order to benefit from no gain or loss exemption. So once you’ve moved out, that obviously wants you to move into the new tax year. If you don’t move back in again, then that exemption doesn’t apply. So that’s a big issue and when it comes to a divorce settlement, if there’s a number of say properties or assets that you that you share out, you know as part of that process, if you’ve not been able to do that within that initial period of exemption, then there could be capital gains tax consequences for that. And the reason for that is that people who are married are connected for tax purposes. So there’s a statutory definition of what connected persons are. But it’s usually your mother, father, siblings, children, and obviously, and spouses. The reason that’s important is that when you transfer assets between connected persons, you’re deemed to be doing so at market value of whatever that asset is. So even if there’s no actual money changing hands, you’re deemed to be selling it to your spouse at its market value. If that’s an asset, which has gone up in value significantly over the period of time of ownership, then we’d be looking at capital gains on the difference between that market value and the acquisition cost.
Tamsin Caine 5:55
This legislation always seemed massively unfair, because you’ve not got a 12 month period, you’ve got a however much of the tax year happens to be left when you separate, like you say, if you decide to separate on the sixth of April, all well and good, you’ve got 12 months, although actually getting to a financial settlement in 12 months is, is pushing it. But you know, if you start if you separate in March, God and Bennett you’ve had it, haven’t you, there’s really no chance that you’re, you’re likely to get everything done and dusted. So okay, so that’s how that’s where the law was. So what’s changed? Where are we now.
Matt Stambach 6:39
So since April 2023, transfers between spouses has been extended to the three tax years following the year of separation. So that gives you at least three years possibly as much as nearly four years to sort out your affairs, that no gain or loss exemption will will apply in that in that period of time. In addition to that, and to make things even more, I guess, flexible. If the if the assets are being split up via a court order, there’s no time limit on that court order. So your divorce could take 10 years to go through, if it’s going through the courts. If assets are transferred via a court order, then the nil gain or loss exemption still applies.
Tamsin Caine 7:27
Awesome. So I mean, I think it’s no brainer to get a court order when you get divorced anyway, like get everything in writing, get it all all sealed by the carton and legally stamped. But even more reason to if if it means that there’s no capital gains, however, as you mentioned before, when you were describing to us what capital gains actually are and how the no gain no loss works. We’re not saying there’s no capital gains tax payable at any point. We’re just saying that there’s no capital gains tax payable on the transfer at the point of divorce.
Matt Stambach 8:11
Right, yeah. So the way that it works is that the receiving spouse, whatever the asset is, let’s, for example, use a property as an example, if a property is transferred into from one spouse to the other, the receiving spouse is deemed to receive that asset at its original base cost. So it doesn’t matter what the value of that asset is. Under the no gain or loss provisions. It’s the original base costs. So in an example, where a property is it may be worth 500,000 pounds at the time it’s transferred over. But if it was purchased for, say, 200,000 pounds, the receiving spouses base cost for capital gains purposes is the 200,000 pounds. So if that spouse then goes and sells that property for say 550,000 pounds in the future, they will pay capital gains on on the difference between the 550 and the 200. Original base cost.
Tamsin Caine 9:08
Okay. So when we’re thinking about the true value of if the asset that we’re transferring across to our spouse, even though the capital gains tax isn’t payable, it needs to be considered and we need to understand that actually, the value is the value less this capital gains tax that would be payable on the transfer of that is that that would be what you would say
Matt Stambach 9:36
it is so it’s naturally difficult to quantify because capital gains taxes differing rates, if you’re a basic rate taxpayer, you have some of your gains could be taxable. Again, if we’re talking about a property, that could be taxable 18% Some of them could be at 28%. And it’s very possible that between the date in which those assets are transferred over and the date in which it sells there The government may well have changed those rates. So while it’s important to factor that into any divorce agreement that’s occurring, it’s quite difficult to control to quantify what that figure is going to be, because there’s a lot of lots of determining factors.
Tamsin Caine 10:13
Okay. So this might be a million dollar question next. In those circumstances, obviously getting tax advice from my tax advisor is going to be vitally important. Would you normally look at the position that those spouses were in at that point? So if you were looking at has been given or transferring the property to why you would look at her circumstances at that time?
Matt Stambach 10:45
Yeah, certainly. So we could we could give an estimate based on current law, you know, of what the capital gains tax liability would be assuming everything is the same. And all we would really need to do to take that into account is to know what that property was purchased for in the first place to get an understanding of what the wife’s income is, because it is it is relevant. And do a best estimate, as you will have seen, if you pay attention to capital gains tax, there have been a number of changes recently, particularly to do with the amount that you could earn without paying any capital gains tax. Previously, it was 12,300. This current tax year we’re in it’s 6000. And it’s going down to 3000. From April next year. So that’s quite quite a fairly significant reduction in that in those allowances, which means there’s going to be more and more things that come into the scope of CGt, that didn’t previously.
Tamsin Caine 11:40
Yeah, so chunkier difference, isn’t it? So when we’re talking about income? under which you don’t have to pay capital gains tax? This is, this is games. Yeah. And then like ending? Yeah. Okay. So that yeah, that’s a that’s a huge shift from from kind of best part of 13 grand three grand. Yeah, that’s, that’s gonna be that’s gonna affect a lot, a lot more people as well. So yeah, I think getting the right advice is, is really going to be important. I think. The question that is most commonly asked about capital gains tax when people are going through divorces around the marital home? Yeah. Because this is the thing that I was gonna say everybody has, that’s not quite accurate. But you know, a large majority of people in this country own their own property. And on divorce, this is a massive issue. So what’s going to happen in terms of capital gains tax around the property? So do you wanna give us a an overview of If
Matt Stambach 12:45
So, you’re quite right, the, the family home is often a very large point of contention. And as mentioned before, before the changes in April 2023, that the family home was effectively that had the same treatment as all the other assets in the sense that the no gain and loss provision only applied for the year of separation. There was however, and while still is technically it’s still within the legislation, and additional bit of relief for the departing spouse, which applies only in circumstances where the property was being transferred to the occupying spouse. So in the case, where, let’s just suppose that the property is being sold first and foremost, if it’s instead of it being transferred from one to the if it’s being sold, then the departing spouse would likely pay capital gains tax on any period that he wasn’t or she wasn’t I should say they weren’t occupying the property. With with capital gains tax, the the main relief, its main residence relief for principal private residence relief, has had a few names over the years, which is 100% relief against capital gains tax, if you purchase a property occupied as your only or main residence, and then sell it. As part of the name residence rules, you can still get relief for the final nine months of ownership of that property, even if you weren’t living there. You have to have lived there at some point in order to qualify for that, but you don’t have to have been living there at the time. Now, if the departing spouse leaves the property, and it is sold within that nine month period, no issue. If, however, it is a long standing divorce, and there’s a number of years in which the departing spouse has been out of that property. Well, then, in an example where let’s suppose we bought the property 10 years ago, the departing spouse moved out after five years and the property was sold after 10 years of ownership. Only 50% of any gain for the departing spouse will be covered by that relief, the occupying spouse would get 100% relief because they’d been living there. Now that if there was a transfer from front instead of so that’s the circumstance. So that was I should say the circumstances if the property was to be sold, if the property was to be transferred to the occupying spouse, there was an additional provision, as I alluded to earlier, whereby providing a there was a divorce be during the period of the departing spouses absence, the occupying spouse remained there as their main residence or providing they still live there. And the departing spouse hadn’t acquired a new main residence, they could still apply for main residence relief for that period that they were not acute actually occupying the property. So there’s some provision in there for when, when the property is being transferred from one spouse to the other doesn’t apply at all or didn’t apply, I should say at all. If the property was sold, since April 23, they’re the rules of event effectively become much more aligned. So the rules do apply. If the if there is a sale, same rules apply the providing the departing spouse hasn’t acquired a new main residence or elected for a new main residence, then even if there is a sale towards the party, that would be that would get relief for that period. So that’s, that’s a fairly big change. And again, it widens the time period from departing to solution, and solves any tax issues that have arisen because of that. In addition, actually, one thing, which is not mentioned very often, but in some cases, spouses who have departed and transferred the asset to the remaining spouse actually retain an interest in that property if it’s sold in the future. And again, prior to April 23, any gain I suppose, or profits received from a future sale would be subject to CGT. Again, that is a change whereby that is still also treated as a no gain no loss acquisition for the for the departing spouse. So big changes in relation to the departing spouse, but mostly, mostly linked to the sale to a third party as opposed to the transfer to a departing spouse,
Tamsin Caine 17:45
I’d be less than I think I think I’ve got my head around. So just thinking in terms of we talked about the transfer of the property, with one spouse remit retaining an interest. And I know there are people who they both retain the ownership for because of mortgage circumstances, etc. But there’s a meta order in place that the property won’t be sold until Angus child’s date TNR or whatever, just that classroom. Did that rule that you just explained?
Matt Stambach 18:30
Yes, it should do? Yeah. Because the departing spouse has retained that interest in the book.
Tamsin Caine 18:36
Okay, so it doesn’t have to be that the properties fully transferred across to the other person at the point of being made. Okay. Perfect. Brilliant. That’s great. Have we wrapped up TGT?
Unknown Speaker 18:51
Um, I think, yeah, pretty much that there’s so the the, the main point was that the rules around main residence relief on those transfers, applies more to sale as well as transferred to the spouse, which is a big point. So yeah, I think we’re pretty much covered on that.
Tamsin Caine 19:10
So just one question, I think just because this is a cause for debate, all I’ve all the time, is there a as far as taxes concerned, because they know the law is a whole orange to itself. As far as taxes is concerned, the date of separation? Is that the date somebody leaves their family home?
Unknown Speaker 19:34
Yes, it is, usually Yeah.
Tamsin Caine 19:36
Okay. Perfect. So it doesn’t necessarily mean the date that they’re that one of them start sleeping on the sofa or
Matt Stambach 19:43
No, because within the tax legislation, it’s to do with whether the spouses have lived together in the tax year. So if if they’re still living together, they might have separated sort of informally and one’s been sleeping on the couch for a year. That’s when they actually leave that the, I guess the provisions of the no gain or loss start. They do still start because there is still a deadline if not court ordered. But yeah, there’s a lot more time now, whereas there was quite a restricted time before.
Tamsin Caine 20:17
Okay, that’s really useful. Thank you. And the next tax we’re going to tackle today is inheritance tax. So how does so inheritance tax is about when somebody dies. So tell talk to me about how divorce impacts inheritance tax.
Matt Stambach 20:39
There isn’t an awful lot to be honest to be too concerned about. When when spouses are what when when transfers are married, any transfers of assets similarly to capital gains tax, any transfer of assets are is exempt from IHT. So you can pass assets between spouses without having to worry about ageing, unless you are a UK domiciled spouse, and you are transferring assets to a non UK domicile spouse. Now that might be a term that people might not be too familiar with. And in order to keep it as simple as possible. domicile generally is where you’re from, and you usually inherit your domicile from your father. That’s as simple as simple as I can make it. The restriction on that is that you can only gift assets up to the wildly available nil rate band that you have, which for everybody is 325,000 pounds. If you were to transfer more than 325,000 pounds of value from the EU from the UK domicile spouse to a non UK domiciled spouse, there will be lifetime inheritance tax payable on that transfer. So it’s quite a quite an important point. The movie that wanted to get too technical, there are circumstances where the non domiciled UK spouse can apply to be considered domiciled for the purposes of asset transfers, right. But yeah, that’s probably a whole whole other word.
Tamsin Caine 22:14
That sounds very complicated. Okay. So because domicile is another term that’s defined differently in tax legislation and under law.
Matt Stambach 22:26
So yeah, it’s not a it’s not actually at all. Detailed in tax legislation, there’s no definition of it. It’s a common law definition domicile, which, essentially, to keep it as simple as possible. It’s basically where you’re from or where your father was from.
Tamsin Caine 22:45
Okay, so if I’m, if I’m from the UK, but my father was from China, yeah, I will be domiciled in China,
Matt Stambach 22:56
Naturally domiciled in China Yes, you can acquire a domicile of choice by effectively cutting ties with the country of your of your origin if you like and setting up a home in another country. If you actually been in the UK for certain amount of time you are deemed to be UK domicile even if you’re not. So you can you can actually become UK domiciled deemed domiciled once you’ve been in the UK for an extended period of time.
Tamsin Caine 23:23
Okay, so at that point, those transfers might be acceptable
Matt Stambach 23:28
..with them become exempt if you are domiciled, exempt and you and you are, that exemption applies right up until the divorce is finalised and it gets Decree Absolute once it’s completed.
Tamsin Caine 23:40
It is the final order now but yeah. All changed since no fault divorce. But yeah. Okay, that that makes that makes sense. So I think..
Matt Stambach 23:53
if assets were transferred after the final order, then from again, from one UK domicile spouse to another, they wouldn’t be considered a potentially exempt transfer for inheritance tax, which means they’re not subject to inheritance tax at the point of the transfer, but the gifting spouse has to survive for seven years in order for that value to escape their estate.
Tamsin Caine 24:17
Okay, so wrap them in cup more. Seven years. Final point.
Matt Stambach 24:22
Yeah, final point, I would just say is that getting a divorce doesn’t revoke a pre existing well. So if you don’t want your spouse to be in your will, and suggest getting a new will. Absolutely.
Tamsin Caine 24:33
Absolutely. And our previous episode, you can go and listen to Michelle Tang from private clients list is talking all about wills and lasting powers of attorney. So lots of information there. Yeah, massively appreciate that. That is good advice. And then another tax that we haven’t yet considered is income tax. So Again, how is income tax going to impact? Our divorce? Oh, not as well. So you and me aren’t married yet.
Matt Stambach 25:07
So now, it’s it’s not directly impacted necessarily in the sense that there’s nothing really that’s going on in the divorce, that’s going to lead to an immediate charge to income tax, the transfer of assets between spouses is not subject to income tax. However, a spouse may receive as part of a divorce settlement, say, let’s let’s use a property again, or perhaps a share portfolio, which generates income. So if an income generating asset is passed from one spouse to another, the recipient spouse will become liable to income tax on the income that is generated from that asset. If this if this, the spouse hasn’t, for example, had that type of income before, they may need to complete stuff suspend tax return in order to declare that income. So while it’s not necessarily directly impacted by the divorce proceedings, it’s more of a, I guess, an after consideration once once everything’s been distributed.
Tamsin Caine 26:09
Yeah. And that’s really good advice, because I’ve certainly had clients who were joint owners of a an investment property, so a property that was rented out, they’ve never needed to do self assessment forms, because they perhaps didn’t have any income and the rental income, their share at the rental income was falling within the personal hours. But actually, if the whole property is then transferred to them, and they’re receiving double the income that they were before, there’s every chance that they they then need to do need to declare this.
Matt Stambach 26:47
Yeah, it’s entirely possible. Another thing, just don’t just think about in terms of an income tax thing is to do with maintenance payments, the receipt of maintenance payments is not taxable on the recipient. However, from the the spouse who is required to pay maintenance, that maintenance payment is quite well must come from net income. So if if you are required to make maintenance payments, that will factor into your personal tax planning in order to make sure you’re extracting income from wherever your income sources are in the most tax efficient manner in order to pay that those maintenance payments.
Tamsin Caine 27:28
That’s it. That’s useful information. Because quite often, I have come across business owner, spouses who would very much like to pay their maintenance by creating a salary from their own firm. Yeah, my view is always well, that’s not maintenance payment, that’s a salary and it needs to be paid for a job of work. Would you agree with that?
Matt Stambach 27:54
Yeah, maintenance payments are due from someone’s net income. So I’ve again, I’ve seen something fairly similar where payments were made directly from the the owner, manager versus company to, to the former wife in this case, but those, those payments were just effectively considered to be borrowings by the director. So they’re basically borrowing the money from the company to give to the former wife. But those borrowings have to be repaid with taxable income to at some point, the tax is going to have to would have had to have been paid on those payments by the director by way of drawing taxable income.
Tamsin Caine 28:35
Okay, so if you want to think about the most tax efficient way to draw the net income, or the income after tax to pay that maintenance bigger, then tax advice is gonna be pretty essential. I would have thought, absolutely, yeah. Okay, question just popped into my head. And, and I’m, I really should know the answer to this. But it’s, it is for mixing me a five, if I’ve got an ISA. And I want to transcend that my ice is going to be transferred to my spouse on divorce as part of the settlement. That’s felt stops being an ISA on the transfer, doesn’t it?
Matt Stambach 29:17
Yes, I believe so. Yeah. Yeah.
Tamsin Caine 29:20
That’s what I thought, but I was like, that doesn’t seem quite right. But yeah,
Matt Stambach 29:27
I believe that the the recipient spouse would need to set up their own ISA and put the funds into that the spouse passing the ISA over ice as a tax free, essentially. So a lot, particularly if it’s stocks and shares ice required to liquidate the stocks in order to get the cash was no personal income tax on that process.
Tamsin Caine 29:47
Okay, again, that’s worth worth thinking about, you know, if it’s in an ICER and you think, oh, we’ll, that’s a benefit. I’ll get this, this tax free wrapper around that when I get hold of it actually. That’s Not the case on on the transfer it unless you put it into your own nicer and have sufficient allowance available. I guess it is worth as just touching on on the available personal allowances for for tax because I think they add it. I think they’re quite complicated. So let’s let’s start let’s go in the order that we’ve that we’ve worked our way through. Not to tell them gains tax. So personal personal allowances currently
Matt Stambach 30:35
Annual exemption is the correct answers to income tax and capital gains annual exemption is currently 6000 pounds, that’s for the tax year 22 to 23, sorry, 23 to 24.
Tamsin Caine 30:50
That’s because you’re doing tax returns at the moment. Okay, so 2324 6000, from April the sixth 2020, for that reduces to 3000. But by Okay, and if there is capital gains tax to pay, if it’s a property, the percentages are much higher than if it’s an investment such as shares, etc.
Matt Stambach 31:20
So gains within the basic rate band is the term on taxable at 18%. If it’s UK residential property gains within the higher rate band are at 28%. What that means is, is if you had income where you were a basic rate taxpayer, which is what come on to this in more detail, essentially, if you’re if you earn less than 50,000, give or take some of your gains will fall within your basic rate band and be taxable 18% And anything that over that would be taxable at 27. Okay, and if it’s an investment for anything other than UK residential property and carried interest, which applies to hedge fund managers, it’s 10%. On on gains within the basic rate band and 20% on higher end gains.
Tamsin Caine 32:14
That’s quite a big difference, isn’t it between residential property and, and non residential property? Okay. Right. Inheritance tax. So we’ve talked about 325,000, or a band, there’s an extra bit
Matt Stambach 32:30
There is if you Yeah, so if you’re passing the family home to your lineal descendants, and your estate is not worth more than 2.3 5 million, you may be entitled to the Corbin residence nil rate band, which is an additional 175k on top of the three to five.
Tamsin Caine 32:49
Okay, what was that clever phrase lineal,
Matt Stambach 32:52
Lineal descendants to your kids, basically? Yeah, awesome. So if you have a husband and wife, for example, who and the Husband Husband passes away and passes all his assets to the wife, his nil rate band and residence nil rate band also passed to the wife. If then when she passes away, she passes the family home to their children, then effectively, she would have up to a million pounds of nil rate band before she would pay inheritance tax.
Tamsin Caine 33:22
Brilliant. So if we’ve got if we’ve got when you’re married, you could potentially have up to a million pounds between you. And there sounds fairly straightforward to say. But actually, when you think about it, it is a huge difference if actually, when you divorce, you only have 500,000 each. And if you’ve got two homes, actually that can that consume swallow that often. In certainly in the UK at the moment
Matt Stambach 33:53
The residents know right band was introduced because people were living in their family homes for 1450 years. And because of the increase in property values in the UK over the past 20 years. People were finding that they would simply wanting to pass the family home on to their children and the children were being hit with very large capital gain inheritance tax bills.
Tamsin Caine 34:14
Yeah, so Yeah, certainly come across cases like that. Okay. And then we moved on to income tax. So just very briefly, and because income tax can get massively complicated, can’t it? So?
Matt Stambach 34:30
There’s lots of different
Tamsin Caine 34:33
Yeah, absolutely.
Matt Stambach 34:34
So we start with earned income. Yeah. So your personal allowance for income tax is 12,570 pounds, that you can earn tax free. Now that will be reduced, potentially all the way down to zero if your taxable income exceeds 125,140 pounds per year. So you might actually be entitled to no personal allowance if you’re at home. I’m gonna give you a simple 12,570 tax free. The next 37,700 is taxable at 20%. Then from 50,270, which is the two added together, up to 125 114, technically taxable at 40%. And I’ll explain why I’m what I mean by technically in a minute. Anything over 125,140 is taxable at 45%. Technically, that applies to the income that you earn between 100,000 and 125,140. Now those of you who are good at maths will know that 25,140 is 15,270 5570 times two, there’s a there’s a, there’s a quite an almost an unknown tax banned in the UK between 100,000 125 60%. And the reason for that is that as you earn over 100,000, as I mentioned, before, you start to lose your tax free personal allowance. So for every pound, you earn, you pay 40% tax, but you also lose 12,000, a lot one pound of your allowance, which means one pack of that pound is now becoming taxable and additional 20% or so the effective rate of those tribes together is at a rate of 60%. So, in reality, it’s 2040 6045.
Tamsin Caine 36:45
Terrifying that that that over 100,000, then it’s also terrifying how few people are aware of it if they’re in those earnings. And I can imagine that many people will not have huge amounts of sympathy for those people. But it will become more and more achievable for people to be earning that amount as we say, people’s earnings going up and up.
Matt Stambach 37:09
Yeah, it’s very relevant for tax planning perspective. If you are in that bracket and want to make pension contributions, you would get 60% tax relief on your pension contributions.
Tamsin Caine 37:21
Yeah, absolutely. Which is huge, isn’t it? Well worth it well worth doing. Brilliant, we’re coming to the end of our time together, anything that I should have asked you that I haven’t, or anything that you want to say, to round up,
Matt Stambach 37:35
I think we’ve pretty much covered the the important changes. And as you mentioned, you know, when when going through a divorce, I imagine that tax is very low on the priorities list. But it should be fairly high on the priorities list. You know, it all form part of the divorce settlement at the end of the day, the the idea is that you distribute the assets in a fair and just and reasonable way. Well, that wouldn’t be the case, if you received something that you then later paid a big, chunky amount of tax on. So it is very, very important. Etc. We’re specialists in tax, you know, we deal with these types of matters on a very regular basis. And I myself have written a number of expert witness reports for court cases. So if you find yourself in those circumstances where you need specialist tax report, we’d be delighted to support him.
Tamsin Caine 38:29
Wonderful! Matt’s details, contact details are in the show notes for you to be able to get ahold of him directly. And I think as he said, you know, any, if you’ve got any assets that you’re likely to pay capital gains tax on getting tax advice early on in the divorce process is going to be absolutely paramount to avoid having to run in finding it an emergency tax advisor at short notice which, which is never a good plan.
Matt Stambach 38:58
Yeah, the worst thing you could do is do it and then ask for help afterwards. Because once you’ve done something, all we can do is tell you what you’ve done, as opposed to help you plan for something that’s about to happen. Absolutely.
Tamsin Caine 39:10
Great advice, Matt. Thank you for joining me today that’s been really useful and relatively straightforward and easy to understand, which is which is good news. So many thanks for joining me many thanks to you for listening and watching and do hope you’ll join us for our next episode.
Tamsin Caine 39:35
I hope you enjoyed the episode of the Smart Divorce podcast. If you would like to get in touch please have a look in the show notes for our details or go onto the website www.smartdivorce.co.uk. Also if you are listening on Apple podcasts or on Spotify and you wouldn’t mind leaving us a lovely five star review. That would be fantastic. I know that lots of our listeners are finding this is incredibly helpful in their journey through separation divorce and dissolving a civil partnership. Also, if you would like some further support, we do have Facebook group now. It’s called ‘Separation divorce and dissolution UK.’ Please do go on to Facebook, search up the group and we’d be delighted to have you join us. The one thing I would say is do please answer their membership questions. Okay, have a great day and take care!