My husband and I decided to divorce nearly 12 months ago but we held off launching proceedings until no-fault divorce was introduced. This way we don’t need to cite blame, which is important to us. Now this law has come in, we feel we can go ahead. Will this affect the financial outcome in any way?

Jayne Martins, a partner in the family team at Royds Withy King, says it is great to hear that you and your husband have agreed not to make allegations against each other for the purposes of your divorce. The Divorce, Dissolution and Separation Act 2020 aims to reduce the potential for conflict and will allow you and your husband to end the marriage jointly should you wish to do so. The no-fault divorce law came in this month so you or your solicitor can now make your application and start the process.

In terms of finances, you can attempt to sort things out between you or use an independent family mediator. You can also speak to a family solicitor, who will be able to help you finalise the agreement you reached together or in mediation, or you could use a solicitor for the whole process. It sounds as though you and your husband are on good terms, so hopefully you will reach a settlement fairly quickly and by consent.

The fact that you have waited to divorce should not affect the financial outcome. The starting point will be for you both to disclose fully and frankly to each other what assets, incomes and pensions you have. If you are fairly confident that you are aware of the financial circumstances this should not be a problem.

However, if you have concerns that your husband may have used the time after separation to have dissipated assets you should seek legal advice as soon as possible. Normally a court will consider the value of assets at the time of divorce or any application for financial remedy proceedings, rather than the value at the date of separation. If assets have been dissipated it may be possible to seek to have them “added” back into the “pot”.

If your financial situation is unlikely to be significantly different from the date of separation, the outcome should be unaffected. The aim of the court and solicitors will be to achieve a fair, reasonable settlement for you both and allow you as far as possible to meet your needs, including housing, income and pension needs.

It is also important to consider any tax implications of divorcing. There are certain exemptions and reliefs available to separating and divorcing couples, for example in relation to capital gains tax, but they are time limited and can only be used within a certain period following separation. It would be therefore be advisable to seek legal and specialist tax advice.

Does my uncle’s estate qualify for simpler IHT reporting?

My uncle passed away in February and I have been informed that he named me as his executor in his will. I am preparing to apply for probate for his estate, most of which he wanted bequeathed to a local charity. I understand there have been changes to the requirement to report an estate to HM Revenue & Customs for inheritance tax purposes and for some estates the process has been simplified considerably. How can I confirm if my uncle’s estate qualifies for the simplified IHT reporting requirement. Is there any chance HMRC will challenge this?

Suzanne Mynors, senior associate in the private client team at Russell-Cooke, says the inheritance tax reporting rules changed on January 1, and as a result you may not need to submit an inheritance tax account to HMRC for your uncle’s estate. The key factors to consider are the value of his overall estate, the value of his taxable estate and his domicile.

Joint and trust assets, foreign assets and certain lifetime gifts must be included in the value of the estate. Various exemptions may be applied, such as the spouse/civil partnership exemption and charitable exemption. Allowable liabilities — for example funeral expenses — can also be deducted to reduce the value. So it will depend on how much was left to charity, whether your uncle was married and the value of all his assets.

Broadly, if the overall value of the estate exceeds £3mn (up from £1mn), a tax return is required, even if there is no tax to pay. A tax return is also required if the value of the taxable estate exceeds the nil-rate band (NRB), currently £325,000, and there is tax to pay.

If the taxable value is under the NRB, this is classified as an “excepted estate”. The value of an excepted estate is now only declared in the probate application, not a separate HMRC form, along with any claim for the unused transferable nil-rate band (TRNB), if he had a predeceased spouse or civil partner.

An inheritance tax return is required if your uncle owned assets abroad exceeding £150,000. You will have to consider his domicile and the nature of the foreign assets (broadly, cash or land, now including indirect holdings). A return is also required if he had assets in trust totalling £250,000 or more (up from £150,000).

Finally, lifetime gifts made within seven years of death must be less than £250,000 (also up from £150,000). However, some gifts can be excluded, such as the annual exemption of £3,000 per donor. If the total of lifetime gifts exceeds the NRB, then inheritance tax may be payable by the recipient of the lifetime gift, unless there are provisions in the will to the contrary. The value of the gift remains unchanged, but if the death occurs more than three years after the gift is made, the rate of tax is tapered from 40 per cent to 0 per cent for years 4-7.

Although business and agricultural assets may attract 100 per cent business property relief (BPR) or agricultural property relief (APR), these are applied after the value of the estate is calculated for inheritance tax purposes. They may reduce the amount of tax payable, but not reduce the overall value of the estate for reporting purposes.

The hastily enacted residence NRB can only be claimed by completing an inheritance tax return and only if your uncle owned a property which he gives to his direct descendants — basically children or grandchildren — and his overall estate is worth less than £2.2mn. 

If you should have submitted an inheritance tax return, and did not, HMRC has a common set of statutory information powers and penalties that they can apply for non-compliance. They also gather information from some third parties such as the Department for Work and Pensions, or notifications where there are foreign assets with double taxation treaties.

A corrective account is required within six months of discovering the error. Penalties for late filing and interest on unpaid tax could apply.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

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