Separation, divorce and tax – tax reliefs on transfer of assets
Your guide to the tax issues associated with separation & divorce.
With the countdown to the divorce referendum well under way, our tax and private client experts answer some of the more common questions clients have when it comes to the impact separation and divorce has on their tax liabilities. Whatever the outcome of the referendum Irish couples face complex tax rules and issues with regard to separation and divorce. Here we answer some of the more frequent queries we receive.
Question #2: Will the tax reliefs available to married couples on the transfer of assets be extended to separated and divorced couples?
Answer: There are a number of tax reliefs available to married couples which exempt them from Capital Gains Tax (CGT), Capital Acquisitions Tax (CAT) and Stamp Duty on the transfer of assets.
CGT is a tax on the profit made on the disposal of any asset and is paid by the person making the disposal. The current rate of CGT in Ireland is 33%. However, transfers of assets between spouses are exempt from CGT, where spouses are living together.
CAT is a tax on gifts and inheritances received by a person and the person who receives the gift or inheritance is liable to pay the tax. The current rate of CAT is 33%. Again however, transfers of assets between spouses are exempt from CAT. There is no requirement that the spouses be living together to claim this relief.
Stamp Duty is a tax payable on the transfer of property. Transfers of property between spouses are exempt from stamp duty. Again there is no requirement that the spouses be living together to claim this relief.
Availability of reliefs following separation
CGT relief does not apply where spouses no longer live together. However, in the year of separation it is general Revenue practice to treat couples as married for CGT purposes. In the years following separation CGT relief will only be available where the transfer is made under a separation agreement or court order.
Revenue permit the transfer of CGT losses between separated spouses in the year of separation only.
CAT and Stamp Duty reliefs continue to apply to separated spouses as there is no requirement that the spouses be living together to claim either relief regardless of whether the separation is voluntary, by formal agreement (Deed of Separation) or court order (Judicial Separation).
Availability of the reliefs following divorce
Divorced spouses are no longer legally spouses so they are no longer eligible for tax reliefs available to married or separated couples.
However, the transfer of assets between spouses on foot of a court order in a decree of divorce will be exempt from CGT, CAT and Stamp Duty.
Couples should be mindful that, any settlement of property made without a court order after a divorce will not be exempt from tax. Furthermore, they will be deemed to be passing assets to and from strangers in blood and will only be eligible for the Class C Threshold which is currently €16,250 for gift tax purposes.
For example, you decide to leave your ex-spouse €100,000 in your will. You divorced over 10 years ago and the asset was not provided for under any court order. Your ex-spouse will not benefit from the spousal CAT exemption and will be subject to CAT at 33%.
In summary, given that the availability of tax reliefs differ depending on whether the couple is separated or divorced, it is important to seek tax advice in advance of either.
When it comes to tax, the implications of informal separation, formal separation and divorce are different and can be complex. If you have any questions, please contact a member of our tax or private client teams.
Question #2: Will the tax reliefs available to married couples on the transfer of assets be extended to separated and divorced couples?
Answer: There are a number of tax reliefs available to married couples which exempt them from Capital Gains Tax (CGT), Capital Acquisitions Tax (CAT) and Stamp Duty on the transfer of assets.
CGT is a tax on the profit made on the disposal of any asset and is paid by the person making the disposal. The current rate of CGT in Ireland is 33%. However, transfers of assets between spouses are exempt from CGT, where spouses are living together.
CAT is a tax on gifts and inheritances received by a person and the person who receives the gift or inheritance is liable to pay the tax. The current rate of CAT is 33%. Again however, transfers of assets between spouses are exempt from CAT. There is no requirement that the spouses be living together to claim this relief.
Stamp Duty is a tax payable on the transfer of property. Transfers of property between spouses are exempt from stamp duty. Again there is no requirement that the spouses be living together to claim this relief.
Availability of reliefs following separation
CGT relief does not apply where spouses no longer live together. However, in the year of separation it is general Revenue practice to treat couples as married for CGT purposes. In the years following separation CGT relief will only be available where the transfer is made under a separation agreement or court order.
Revenue permit the transfer of CGT losses between separated spouses in the year of separation only.
CAT and Stamp Duty reliefs continue to apply to separated spouses as there is no requirement that the spouses be living together to claim either relief regardless of whether the separation is voluntary, by formal agreement (Deed of Separation) or court order (Judicial Separation).
Availability of the reliefs following divorce
Divorced spouses are no longer legally spouses so they are no longer eligible for tax reliefs available to married or separated couples.
However, the transfer of assets between spouses on foot of a court order in a decree of divorce will be exempt from CGT, CAT and Stamp Duty.
Couples should be mindful that, any settlement of property made without a court order after a divorce will not be exempt from tax. Furthermore, they will be deemed to be passing assets to and from strangers in blood and will only be eligible for the Class C Threshold which is currently €16,250 for gift tax purposes.
For example, you decide to leave your ex-spouse €100,000 in your will. You divorced over 10 years ago and the asset was not provided for under any court order. Your ex-spouse will not benefit from the spousal CAT exemption and will be subject to CAT at 33%.
In summary, given that the availability of tax reliefs differ depending on whether the couple is separated or divorced, it is important to seek tax advice in advance of either.
When it comes to tax, the implications of informal separation, formal separation and divorce are different and can be complex. If you have any questions, please contact a member of our tax or private client teams.
