Labour’s first budget has been unveiled and their approach was to reduce national debt and boost the UK economy. However, there are measures in the budget that will affect individuals and therefore may affect those that are currently going through separation/divorce proceedings. Family Lawyers have been awaiting the budget as many clients may have been holding off finalising any financial settlement until this was revealed.

The main elements that are likely to affect a separating couple are the changes to Capital Gains Tax (CGT) and Inheritance Tax (IHT). The following changes have been announced:

Capital Gains Tax rates

  • The Capital Gains Tax rates will increase for disposals, other than of residential property and carried interest, made on or after 30 October 2024. The basic rate of 10% will increase to 18% and the 20% rate will increase to 24%.
  • No changes will be made to the rates applying to the disposal of residential properties of 18% and 24%.
  • The annual exemption remains the same at £3,000.

Inheritance Tax

  • Various exemptions have been removed or altered and therefore there is likely to be more estates that will be applicable to pay inheritance tax.

Couples will be facing difficult decisions in relation to financial settlements and with these changes it may mean that more tax may now be payable on assets that were previously exempt or at a lower rate. The concern for family lawyers is that additional tax will impact the overall matrimonial pot and what is left for the individuals. Where there are issues of coercive and controlling behaviour within a relationship this may also cause further distress with individuals feeling trapped in the relationship.

Raising CGT rates may mean those with second homes, investments and shares, and even artwork or expensive jewellery will be subject to higher rates.

The rates in relation to residential property, for example, the former matrimonial home remains unchanged.

At Ellisons we will assist clients throughout the process of financial negotiations and can also refer clients to financial experts so they can obtain expert tax advice alongside our legal advice. This is so important when clients are considering a settlement, so they are fully aware of all the implications. Experts can also be instructed in relation to pensions to ensure that any necessary reports are available to the parties. Those anticipating inheritance during negotiations will also need advice regarding the amendments to inheritance tax.

To arrange an appointment with a member of our Family Team, please contact us on 01206 764477. The team can offer advice at one of our offices in Colchester, Chelmsford,  Frinton-on-Sea, Ipswich or Bury St Edmunds.  We offer a free exploratory call so that we can match your specific needs with the right person in our family team. Due to the financial implications of the budget, it is important for you to obtain legal advice at the earliest opportunity.