The Autumn Budget often brings policy changes that influence many aspects of financial life. This year’s was pitched to be “painful” with the government said to be making “big asks” of the public, by our Prime Minister Keir Starmer. Whilst some may say it was not as bad as initially feared, there are some big changes that are going to be made which primarily affect high-net-worth and ultra-high net worth individuals.
This article breaks down the key changes affecting capital gains tax, national insurance contributions, minimum wage, pensions, and the abolishment of the “non-dom” status, all of which could play crucial roles in divorce settlements and post-divorce financial planning.
Capital Gains Tax
One of the most notable updates in the Autumn budget concerns Capital Gains Tax (CGT), which has direct implications for divorcing couples who are required to dispose of assets such as property, shares, or other investments. Traditionally, CGT is payable on the gain made when disposing of certain assets, potentially creating significant tax liabilities for one or both parties in a divorce.
The Spring Finance Bill 2023 brought welcome changes to the treatment of CGT for divorcing couples which enabled transfers to take place between them to be done so with no charge. See our previous article about this here.
This year’s budget however, has raised the rate of CGT payable on those disposals which are chargeable. There is now just one standard and one higher rate of CGT payable on all types of assets, with there no longer being separate rates in relation to residential property. The standard rates of 10% and 20% have been increased, effective immediately, to 18% and 24%, matching the rates which already exist for residential property gains.
This has implications for how property and investments are divided on divorce, as couples may need to account for additional tax payable on the disposal of assets. Seeking professional tax advice from an accountant will be beneficial in these cases to understand the true extent of the liability and any mitigation steps which can be taken to avoid a tax burden that could disproportionately impact one spouse. Ultimately though, there is now likely to be fewer funds available on the disposal of such assets to meet the family’s needs where CGT is payable in order to realise funds.
Higher National Insurance contributions
The budget also introduced higher National Insurance contributions (NICs) for employers. The rate will rise from 13.8% to 15% from April 2025 and the employee earnings threshold at which an employer pays such national insurance will be reduced from £9,100 per year to £5,000 per year. For divorcing couples, this affects both immediate and future financial planning, particularly for business owners. Higher employer NICs means increased operational costs of a business and therefore less available profit for the business owner to take home. This could directly impact a spouse’s ability to pay maintenance and adhere to the terms of a settlement calculated based on income levels.
Further, the increased costs may also impact the value of a business especially where the profit margins decrease. In cases where a business valuation has been undertaken, the parties should liaise with their expert valuer to establish whether this impacts their opinion on the valuation.
Minimum wage increase
The increase in the national minimum wage will have a direct financial impact on couples in which one or both spouses are lower-income earners. For lower-wage workers going through a divorce, this rise could provide a modest boost to their income, offering more financial stability. It can also mean that child maintenance calculations need reviewing to reflect the changes in income.
However, there’s a downside for small business owners or self-employed individuals who may now face higher wage costs for their employees. If one spouse runs a business and faces additional wage obligations due to the new minimum wage (along with increased NICs, if applicable), they may experience greater financial strain. This means that for some families, there will now be more money to meet the family’s needs but for others who are the owners of the businesses higher operation costs and less for the family. As mentioned above, expert advice should be sought as to whether this impacts any business valuation undertaken.
Stamp Duty Land Tax (SDLT)
With immediate effect, the Labour government increased the SDLT surcharge on the purchase of additional properties from 3% to 5%. This, coupled with the already planned reversion to the former SDLT threshold where it is payable on any property valued over £125,000 could result in a significant rise in costs of purchasing additional property. This will particularly impact those parties who wish to purchase a home for them to live in post-separation whilst also retaining an interest in the former family home to enable their former spouse to stay in the property with the children.
Abolition of non-dom status
The final major update that may impact divorcing couples is the abolition of the “non-dom” tax status, which has historically provided tax benefits to UK residents with foreign income or assets. Traditionally, non-doms only pay tax to the UK government on money they earn in the UK. Unless money made elsewhere in the world is paid into a UK bank account, tax is not payable on it in the UK. This has provided significant benefits for wealthy individuals enabling them to nominate a country with lower tax rates as their domicile and ultimately pay less tax on those assets abroad.
With the abolition of this tax status, individuals who previously benefited from this arrangement will now face greater tax liabilities on their worldwide income. For divorcing couples where one or both spouses have foreign assets, this change could impact their financial outlook and reduce their available asset value. For instance, if overseas income or assets are included in the settlement, both spouses may need to factor in additional tax costs, potentially leading to a reduced net value for foreign holdings.
We are here to help
The Autumn Budget’s changes have created a landscape where divorcing couples must approach the division of finances with added caution, taking into account new tax burdens and financial considerations.
At Moore Barlow we have expert family lawyers who can guide you through these changes and advise you in relation to their impact on any financial settlement reached. We also have the benefit of our own in-house tax adviser Alex Wavell and support from our corporate and commercial teams where required to assist with any business planning. Please do not hesitate to get in touch.
