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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15979
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Recent Foreign Divorce and Cash Disposal (lump sum payment)

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Recent Foreign Divorce and Cash Disposal (lump sum payment) to Foreign Spouse relevant to UK 2014/15 Tax return . Is the tax issue of concern . Please Help !!! Could you advice on the following UK tax issue for 2014/2015. Tax implications . I just cannot fathom . Will I have to pay any immediate tax ? Previously non resident , If all clear I can get in my tax return and declare myself UK resident for 2014/15 with a clear mind . I thought my tax return was to be a simple exercise then at the very last moment have realized a rather important transaction as above was conducted in the relevant tax year . It appears to be a difficult exercise for the average person (me) to locate the procedure to be applied in this case , summary notes HR 261 essentially state to ask HRMC or your tax advisor . There might be a few angles to the divorce settlement ie IHT , and any Capital Gain for my foreign ex spouse , but the immediate one of concern is to determine if there is any nasty tax surprise awaiting on my part with regard to CGT or disposal once I shortly submit my tax return 2014/2015 . A British National , I was non resident for tax years 1996 to 2013/14 working and living in Malaysia . I returned to UK 08 Sept 2014 thus making me UK tax resident for 2014 / 2015 .The HRMC has not yet been informed of my return . I am not working or drawing benefits , pension , etc . My entire income for the 2014/15 tax year is £ 2,734 which is gross untaxed interest . Divorced , with custody , I am a single parent to my 16 year old son now in UK education , I did not yet get around to claiming child benefit . I don’t own property here or abroad and I pay rent for current residence in the UK . I also support my 19 year old son started UK university Sept 2014 , I pay all course fees and maintenance as no student loan was applicable in relation to the 3 year residence rule . The divorce was with the High Court of Malaysia . My ex - wife is a Malaysian National remaining in Malaysia with no tax ties to UK . A single lump sum payment of 350,000 Malaysia Ringgit (£ 68,627 ) was made to my wife in respect of a Court Consent Order . This was the only financial transfer to the consent order , there was no property transfer . Dates as follows Divorce Petition 22 April 2013 Consent Order 20 May 2014 Payment of £ 68,627 03 June 2014 Decree Absolute date 20 August 2014 The Financial Term to the consent order as follows ‘The respondent , (myself) , to pay the Petitioner (my wife) 350,000 Ringgit Malaysia (£68,627) as a maintenance settlement and the said amount shall be paid in cash and full before the 5th day of June 2014 . There will be liberty to either party to apply. ‘ Therefore one lump sum was paid . Hopefully the last however it was not clean break as the order allows application to the court for any future award. Separation Date I note this may be of relevance to UK tax . In relation to the divorce process such date was never determined in respect of both parties . However it is a Malaysian legal divorce requirement that separation was for 2 years and thus can be determined to be at least 2 years prior to petition date of 22 april 2013 , ie before 22 April 2011. Therefore the payment was not made in the tax year of separation . The payment was made after the Consent Order as per terms and before the Decree Absolute. Unfortunately no UK tax aspects were considered prior to the divorce and terms of the consent order , perhaps it may have been fortuitous that the disposal is termed as ‘maintenance payment’. With regards ***** ***** I note the foreign spouse threshold was raised from £ 55,000 to nil band £325,00 on 6th april 2013. Thus , I suspect with regard to IHT the disposal sum of £68,627 made is not too worrisome . However the bot***** *****ne I have high concern for is regard any immediate taxable CGT on my part for the settlement disposal as I just cannot source the procedure . Will I have to pay any immediate tax ? Kind Regards ***** ***** XXX


Capital Gains Tax is only charged on a gain made on the sale or gift of an asset and is never charged on cash gifts, only on currency exchange gains. Not that there any tax implications in any event as far as the divorce settlement is concerned but, given that you will probably qualify for split year treatment for 2014/15 such that the tax year is divided between a period of non-UK residence and a period of UK residence and that your divorce settlement sum was made in Malaysia and before you returned to the UK, there is no CGT issue to consider.

I hope this helps but let me know if you have any further questions.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Tony thank you .

One more question . since a cash asset disposal was made would the 7 year 'gift' rule apply ?

Thanks for accepting my answer.

I will look at the gift question and get back to you later.
Customer: replied 2 years ago.

ok . thanks Tony

Take a look at the notes at the bottom of the page under "Inheritance Tax" here. Whilst the piece was written in 2011 and the £55,000 limit for gifts to non-domiciled spouses has been raised to £325,000 as you already know, the basic principlea are the same. Your payment was within the £325,000 limit.
Customer: replied 2 years ago.

Ok .Thank you again .

regards david