Divorce & Tax 2026/27 | CGT, Maintenance, Pensions & IHT

Divorce rearranges your finances, and tax sits underneath every transfer. While you are married, and for a defined period after separation, asset transfers between spouses can qualify for no gain/no loss treatment for Capital Gains Tax. The timing rule is not a simple 24-month window: it depends on the tax year of separation and whether a formal divorce agreement or court order applies. Maintenance, pensions and Inheritance Tax each have their own conditions, so the settlement should be reviewed as a whole.

Getting the timing right — completing transfers within the CGT window and updating your will, pension nominations and insurance trusts after the divorce — can save thousands. Estimate CGT on any property transfer with the CGT Calculator→, and model the estate position with the IHT Calculator→.

Capital Gains Tax on Transfers

The deadline is the earlier of the end of the third tax year after the tax year in which the spouses stopped living together, or the date the court grants the divorce or dissolution. A transfer made under a formal divorce agreement or court order can qualify for no gain/no loss without that time limit. The receiving spouse generally takes the original base cost. The family home may also qualify for Private Residence Relief, but a property that has been let or was not occupied as a main residence can carry a taxable gain, so timing and use still matter.

“Separated” is a tax fact, not simply the date one person moved to another address. HMRC treats spouses as living together unless they are separated under a court order, under a formal deed of separation, or in circumstances where the separation is likely to be permanent and the marriage has broken down. Keep the relevant agreement, order and chronology. If the transfer is outside the no-gain/no-loss rule, HMRC says the disposal date and consideration depend on the facts, including the final order, court order or contract. Do not use the market-value example as a filing calculation without checking the actual transaction.

Spousal and Child Maintenance

Ordinary spousal maintenance does not follow the simple salary-style “taxable to one side, deductible to the other” rule. A narrow Maintenance Payments Relief may be available only where statutory conditions are met, including conditions relating to the payer, recipient and court order. Child maintenance is generally neither taxable for the recipient nor deductible for the payer. Keep the two types of payment separately documented and obtain advice on any legacy or qualifying arrangement.

Maintenance should be separated from capital transfers in both the settlement and the records. The payer's bank transfer description does not decide whether a payment is maintenance, a property adjustment or a pension-related payment. A payment labelled “child support” should not be used to support a claim for a different relief. Check whether any historic Maintenance Payments Relief conditions are met rather than presenting relief as a normal deduction for modern settlements.

Pension Sharing

A pension sharing order moves a percentage of one spouse's pension rights to the other with no tax on the pension credit transfer itself. The receiving spouse gets pension rights in their own name and is taxed under the receiving scheme's rules when benefits are drawn. Tax-free cash is not automatic: many pensions allow up to 25%, but the amount depends on the scheme and the source of the credit, and some pension credits cannot support a tax-free lump sum. Pension attachment and offsetting arrangements follow different rules, so compare the routes before agreeing.

The pension administrator must implement a pension sharing order; it is not completed by a private spreadsheet or by moving cash between bank accounts. Ask for the scheme's implementation charges, timescale, minimum transfer requirements, protected rights and the receiving arrangement's access rules. A pension credit may have a different normal minimum pension age from the recipient's other savings, and a defined-benefit credit is not equivalent to the same nominal amount in a defined-contribution pot. Compare income, inflation protection, survivor benefits and investment risk as well as immediate tax.

Inheritance Tax After Divorce

The unlimited spouse exemption generally applies while the couple remain legally married, including during separation, but not after the divorce is final. After divorce, the treatment of gifts and inheritances depends on the estate, available nil-rate band, residence nil-rate band, transferable allowances, reliefs and the exact transfer; do not assume every transfer is taxed at 40% or that £325,000 is the only relevant threshold. Review the will, life insurance trusts and pension nomination forms after the divorce, because legal and scheme rules can produce different outcomes. A deed of variation within two years of death can sometimes redirect inherited assets if updates were missed, but it is not a substitute for updating documents now.

Divorce can change who is expected to receive an estate, but it does not automatically rewrite every beneficiary nomination. Ask the pension provider and insurer for their own forms and effective dates. Record the decree absolute or final order, the new will date and any trust changes in the settlement file. If one spouse remains in the former home or receives a life interest, obtain advice on the legal and tax consequences rather than treating the arrangement as an outright gift.

Worked Example: The Family Home

The facts. Sarah and David jointly own a house bought for £250,000, now worth £400,000. The settlement transfers David's half to Sarah.

Completing the transfer before the applicable CGT deadline, or under a qualifying formal agreement or court order, can preserve no-gain/no-loss treatment: David pays nothing on the transfer itself. If the deadline is missed without that protection, the transfer may be treated as a disposal at market value. The £18,000 figure is only an illustrative upper-rate calculation before considering the individual's tax band, annual exempt amount and other gains; it is not a tax assessment. SDLT normally depends on chargeable consideration, but HMRC has a specific divorce and separation exclusion for transfers under an agreement or court order. Check that the documents and parties fit that exclusion before assuming that taking on mortgage debt creates SDLT.

Pension Offsetting vs Sharing

Offsetting swaps pension rights for other assets — one spouse keeps the house, the other keeps more of the pension pot. The non-pension asset transfer can create CGT if no relief applies, and property transfers also need a transaction-specific SDLT review. Pension sharing moves pension rights directly with no tax on the pension credit transfer itself, but the receiving spouse takes on the pension's own rules, including access age and tax-free-cash limits. Scheme implementation costs and timescales should be checked before agreeing.

Legal Fees and Tax Advice

Divorce legal fees are generally personal and not tax-deductible. Some expenses may be allowable only where the relevant tax legislation specifically permits them and the statutory conditions are met; a valuation or pension calculation is not automatically deductible just because it relates to a settlement. Keep itemised invoices and obtain tax advice before treating any cost as an allowable deduction.

Practical Tips for the Settlement

Agree the asset split in principle before instructing valuations, then let the tax position shape the detail: complete transfers inside the applicable CGT period or formal order, check the main home for Private Residence Relief, document maintenance and child payments separately, and put any pension sharing order through using the scheme's process. The order in which events happen can change the result, and a cash or debt-funded property buyout needs its own SDLT review. Take the settlement's total tax cost, not just the headline figures, and revisit it when the divorce is final.

Frequently Asked Questions

Estimate any CGT with the CGT Calculator→ and the estate position with the IHT Calculator→. Pair this guide with Capital Gains Tax 2026/27 and Marriage Tax Breaks for Couples 2026/27 for the wider family-finance picture.

Official sources

• HMRC: HS281 Capital Gains Tax — civil partners and spouses 2026
• HMRC Capital Gains Manual: separation and divorce
• GOV.UK: SDLT when transferring property because of divorce or separation
• HMRC Pensions Tax Manual: divorce and pension benefits
• GOV.UK: Tax-free pension lump sum
• GOV.UK: Income Tax relief on maintenance payments
• GOV.UK: Inheritance Tax