George Bull, senior tax partner at RSM UK Tax and Accounting Limited, has warned a Ministry of Justice mistake could force ‘DIY’ divorcing couples to revisit their financial figures.
Earlier this month Financial Adviser reported HM Courts and Tribunal Service has launched an urgent investigation into a software error on an online form used by divorcing couples across England and Wales.
The software error, on the Ministry of Justice website had been present since April 2014 but was only recently uncovered and rectified.
April 2014 was when the Mortgage Market Review came into force, and the form in question - Form E - had failed to take into account the changes.
Mr Bull said there is mounting concern that ‘DIY’ divorcing couples who might have thought that they had reached finality regarding the allocation of assets only to discover they may have to revisit their figures.
When it comes to capital gains tax, Mr Bull said transfers are not covered by the inter-spouse exemption after 5 April following the date of separation so, in these situations, CGT might be a consideration.
The deadline for the submission of 2014 to 2015 returns, and the payment of the related tax, is 31 January 2016.
Many of those affected won’t yet have finalised their returns and paid the tax.
Mr Bull said the MoJ mistake means they may now have to do so now on a provisional basis.
If they have already paid their tax, Mr Bull said they will have to consider whether they can amend their return and claim a repayment.
He said the need to revisit the divorce settlement via the court might put some people off.
On the impact of the MoJ mistake on inheritance tax, Mr Bull pointed out up to the point of the decree nisi, transfers between the spouses are covered by the inter-spouse exemption.
After this point, he said transfers for the maintenance of the former spouse and children are still exempt for IHT purposes.
So any transfers made after the decree nisi are likely to be ‘potentially exempt transfers,’ which will fall outside the IHT net after seven years, provided they are not for maintenance.
Unless one of the parties has subsequently died, Mr Bull said it is unlikely that any inheritance tax return will have been submitted in connection with the divorce settlement.
Amendments to records of values transferred can therefore be made when the revisited values are known, he said.
Mr Bull said: “Finally, those who are affected may have to incur costs to return to court to renegotiate. Who will pay these costs?
“There is no sign yet of the Ministry of Justice offering its own financial remedy for this problem.”
According to family law firm Slater Heelis, it is not yet known exactly how many people were affected by the MoJ mistake, but that there are 120,000 divorces in England and Wales each year.
