For those going through a divorce or separation (and indeed for those who have settled their finances following divorce or separation) the Budget has consequences that are likely to make matters more complicated. In particular:-
- Mansion Tax – The Budget includes a “High Value Council Tax Surcharge” (or “mansion tax”) on properties worth more than £2M. Owners of these properties will pay an extra £2,500 – £7,500 per annum. This move was anticipated and as a consequence the property market, particularly in London, has stagnated over recent months. This tax is likely to create movement in the housing market and many properties will lose value. The imposition of a mansion tax will make remaining in a family home untenable for some individuals on separation because they will be unable to pay this tax. In the interim, managing property valuations on divorce is going to become more difficult and it will take some time for the market to settle. We may also see more applications back to court to vary maintenance payments upwards to account for this increased tax.
- Meeting needs – many families find their finances squeezed post separation as they struggle to establish two homes on the same available income. Income tax and National Insurance thresholds have been frozen. As incomes rise (either as a consequence of promotions or inflation) more households will see earnings rise into higher bands reducing their overall take home pay. Many families are likely to find themselves in difficulties establishing two homes when their overall income has been reduced downwards.
- Pensions – The Budget has announced changes to the taxation of pensions and also changed the rules around withdrawing sums from pension schemes. This is likely to have an impact on pension sharing orders. Many individuals who have already obtained expert advice on how to share pensions fairly on divorce will now need to revisit that advice in light of the Budget announcements. This will lead to a duplication of costs and inevitable delays.
Undoubtedly, as a result of this Budget, financial arrangements upon divorce will become more difficult and the process of resolving a fair outcome will become more fraught. For those already in the process of unwinding their finances careful consideration needs to be given to the impact of this budget.
For more information on the issues discussed in this article, contact Kelly Gerrard or call 020 7465 4300.
