We were approached by two firms to provide assistance and prepare a Single Joint Expert (SJE) report to advise on the tax implications of dividing assets between husband and wife during divorce proceedings, or sale of assets to a third party and subsequent allocation of the after-tax proceeds between husband and wife. The scope of the engagement also considered any actions that could be undertaken to mitigate the tax exposure of each party in the divorce proceedings.
The assets included their matrimonial home in the UK, another property in the UK, various investment portfolios, and loans from husband to wife.
The husband in this case was US tax resident so we needed to consider his US tax position alongside his UK tax obligations. The wife remained UK resident. To fully advise the court across both UK and US tax matters we needed to work with our colleagues in the US via our Crowe Global network to understand the US tax implications, at both state and federal level, of selling or transferring the assets owned by the husband. This also required analysis of the UK US tax treaty to understand the availability of double tax relief.
There had been periods of occupation in both UK properties whilst significant renovations and development was being conducted on one of the UK properties. This required an assessment for Private Residence Relief across both UK properties but also an assessment of the works undertaken to understand whether tax relief could be obtained on the basis the works were capital in nature. After calculating the capital gains tax position on the disposal of the properties, a capital loss would arise for each party.
Furthermore, some of the investments were in cryptocurrency and analysis of the investments was required to ensure the correct tax advice was given. These investments were sitting at a large capital gain for the husband and would incur significant capital gains tax exposure in the UK along with large state and federal taxes in the US.
We suggested that the parties may wish to focus on disposing of or transferring the properties ahead of the investments to avoid tax liabilities unnecessarily arising for the husband.