Getting divorced to maximise Tax free allowance

swindiff

Bit of a tongue in cheek question but something that occurred to me. Lets say you have a decent final salary pension that will pay you £24k a year on retirement. This would mean you paying tax on £12,150, so £2430 in tax reducing your income to £21,570. You also have a wife with zero pension provision.

As far as I know you cannot gift part of your pension to your spouse, but it can be awarded to them as part of the divorce settlement. So you get divorced, the pension is split 50/50 £12k each meaning that you both pay tax on £150, £30 each. So a £60 income tax bill per year rather than £2430. Enough in a few years for a nice wedding abroad :rotfl:

What are the legalities of this. Would it be considered fraud?

Aegis

I'm pretty sure it would fall foul of:


https://www.gov.uk/government/publications/tax-avoidance-general-anti-abuse-rules


It might also be considered a tax avoidance scheme and therefore subject to:


https://www.gov.uk/guidance/disclosure-of-tax-avoidance-schemes-overview

ukdw

A fair bit of that gain would be lost once your wife starts getting her state pension.

How about instead maximimising your wifes state pension by voluntary ni payments if necessary and deferral.

Plus you could also contribute £3600 gross of your £24k into a pension for your wife from now until age 75 to effectively get about a third (£720) of your tax back.

Tom99

[FONT=Verdana, sans-serif]Yes its a good idea but you need to take it further still.[/FONT]
[FONT=Verdana, sans-serif]After a few years of being divorced, now each with your own pension, you need to get married again.[/FONT]
[FONT=Verdana, sans-serif]That will enable you to avoid inheritance tax on the 1st death with the survivor then having double the IHT allowance.[/FONT]
[FONT=Verdana, sans-serif]Also if you are lucky each of your pensions will come with a 50% for surviving spouse benefit.[/FONT]

Ganga

swindiff wrote: »

Bit of a tongue in cheek question but something that occurred to me. Lets say you have a decent final salary pension that will pay you £24k a year on retirement. This would mean you paying tax on £12,150, so £2430 in tax reducing your income to £21,570. You also have a wife with zero pension provision.

As far as I know you cannot gift part of your pension to your spouse, but it can be awarded to them as part of the divorce settlement. So you get divorced, the pension is split 50/50 £12k each meaning that you both pay tax on £150, £30 each. So a £60 income tax bill per year rather than £2430. Enough in a few years for a nice wedding abroad :rotfl:


What are the legalities of this. Would it be considered fraud?

What happens if your wife runs off with the gardener and half your pension:rotfl::rotfl::rotfl:

Alibert

The divorce strategy is particularly attractive if you have exceeded the LTA

Let's say you have pot of £1.2 m , spouse has zero.
Strategy is to allow the pot to grow to £2m , and then get divorced
Pot splits to £1m each and you are both beneath the LTA

The two of you
save £250k in LTA tax
Get £500k tax free lump sum

That's quite an incentive

ffacoffipawb

Alibert wrote: »

The divorce strategy is particularly attractive if you have exceeded the LTA

Let's say you have pot of £1.2 m , spouse has zero.
Strategy is to allow the pot to grow to £2m , and then get divorced
Pot splits to £1m each and you are both beneath the LTA

The two of you
save £250k in LTA tax
Get £500k tax free lump sum

That's quite an incentive

Unless pension sharing is deemed a BCE (no idea if it is or not).

232607

I don’t think the strategy would win you any Lover if the year awards. What does your Mrs think of the idea!!!

Alibert

It's not an idea that would make anyone smile. But it's a lot of money that the tax system is offering for divorce

Silvertabby

Ganga wrote: »

What happens if your wife runs off with the gardener and half your pension:rotfl::rotfl::rotfl:

...and half the house, half your life savings, etc etc.:eek:

swindiff

Nothing to stop them doing that anyway lol