Tactical Divorce - Tax Avoidance or Tax Planning?
JamTomorrow
Posts: 128 Forumite
Whilst many years away, and the rules are bound to have changed by the time I come to retirement, I am interested on opinions of whether a tactical divorce that resulted in a transfer of half of my pension to her would be seen as tax avoidance or tax planning?
It would seem to me that if the sole purpose of the divorce was to transfer half my pension, and that we continued our lives as before the divorce, then it wouldn't be looked upon too favourably ....
It would seem to me that if the sole purpose of the divorce was to transfer half my pension, and that we continued our lives as before the divorce, then it wouldn't be looked upon too favourably ....
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JamTomorrow wrote: »Whilst many years away, and the rules are bound to have changed by the time I come to retirement, I am interested on opinions of whether a tactical divorce that resulted in a transfer of half of my pension to her would be seen as tax avoidance or tax planning?
Since you say it's many years away, wouldn't a more intelligent approach be for you to pay into her SIPP over the years, thus getting tax advantages (although you pay the tax, she gets the benefit of the tax bump-up into the SIPP).
Doing this over time means she would be able to build up a decent pension in her own right, since presumably the aim of your enterprise is to spread your pensions more evenly to maximise the value of the personal allowances?0 -
Not necessarily, it may be that he has more 40% income than he can pay into his pension without running into Lifetime Allowance issues or having to pay HRT in retirement whilst his wife is a non taxpayer or basic rate taxpayer.presumably the aim of your enterprise is to spread your pensions more evenly to maximise the value of the personal allowances?
A more tax efficient method would be just to fake his own death and then she can get the whole lot tax free if it's a DC scheme!0 -
If it's a dc pension, you could take 25% tax free at 55, then put it into wife's pension. Depending how much she earns will determine how many years it would take to put in. It would be boosted by 25% tax relief. You could also take £1100 allowance from wife to reduce her tax free limit to £10,400 and increase yours to £12,600 this April.0
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JamTomorrow wrote: »It would seem to me that if .... we continued our lives as before the divorce
How would they know? If your wife had a separate address to which her mail was delivered, and if you were careful not to take foreign holidays together ..... Though I suppose the NSA could advise HMRC how often you telephoned each other, and e-mailed each other, and what you said. But use of pay-as-you-go phones and some suitable encryption one-time pads might solve that.
And oh the thrill of the derring-do!Free the dunston one next time too.0 -
You aren't the first person to have had this idea.JamTomorrow wrote: »Whilst many years away, and the rules are bound to have changed by the time I come to retirement, I am interested on opinions of whether a tactical divorce that resulted in a transfer of half of my pension to her would be seen as tax avoidance or tax planning?
It would seem to me that if the sole purpose of the divorce was to transfer half my pension, and that we continued our lives as before the divorce, then it wouldn't be looked upon too favourably ....
I can't recall if there is specific legislation to prevent this, but there is general tax avoidance legislation which could be used to challenge this arrangement and the courts could rule that it goes against the intention of the legislation.
Also, if you have been dishonest in divorce proceedings, the courts can go back and unwind the settlement.
On a similar topic, for the purposes of the additional 3% stamp duty legislation married couples are treated as the same unit but unmarried ones are not, so doing transactions before getting married or not getting married at all are legitimate ways of avoiding the additional 3% in some cases!0 -
Not necessarily, it may be that he has more 40% income than he can pay into his pension without running into Lifetime Allowance issues or having to pay HRT in retirement whilst his wife is a non taxpayer or basic rate taxpayer.
A more tax efficient method would be just to fake his own death and then she can get the whole lot tax free if it's a DC scheme!
If I faked my own death would this affect my PA assuming I still had 9yrs to run on my UK passport.0 -
The 50% pension transfer to a spouse in divorce isn't automatic. The value of your pension 'pot' is just another marital asset, along with the equity in your house, savings, investments etc. Your pension provider will want a copy of your divorce court order before setting up the pension sharing order - so you will have to go through the rigmarole of a divorce hearing and the allocation of all other marital assets. Very messy.0
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Of course - if you are not married - there could be IHT to consider on death of the first now unmarried party?
If LTA is an issue before 55 - lucky you.
If sometime after - as stated - drawdown and put into her pension. If she is same age you can do so for many years from 55 to balance things as suggested before she draws anything.
And invest your TFLS in her name...that is 25% shifted pronto. Juggling it into ISAs as allowances permit.
A fake divorce sounds like something that might cause you to look over your shoulder more than an affair! But, it might make retirement more interesting for you, fooling HMRC and the courts if you could and that is your bent. You'd save on pension while in prison too.
Or you could simply balance between you as best you can and pay the tax due and enjoy life without worry by the sounds of it.I am just thinking out loud - nothing I say should be relied upon!
I do however reserve the right to be correct by accident.0
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