The much-anticipated budget has now been set out (with plenty of political drama and mishaps for the journalists and social media to enjoy!) and the question for those contemplating or in the midst of separation will be – what does this mean for me?
There are a few aspects of the budget that may impact on financial matters on divorce or separation, that I will explore below.
The Mansion Tax
The government plan to revalue properties in specific Council tax brackets in preparation for what they are calling the high value council tax surcharge coming in in April 2028. From that date, the owners of properties valued at over £2 million will pay a minimum of £2,500 per annum additional tax, increasing to a maximum of £7,500 per annum for properties valued at over £5 million. There is some debate as to whether this tax will ever become a reality given the costs and practical difficulties that will inevitably be faced in the valuation process, and the limited level of tax revenue it is predicted to generate, but I predict that it will still impact on financial negotiations and case presentation in the next few years.
The housing market is bound to be impacted by the anticipation of this tax, especially at the higher end, which will make it more difficult for the parties to accurately estimate the cost of rehousing, and for those rehousing in high value properties, their income needs budgets will need to factor in the additional tax to be paid. For some parties, the affordability, on a year-to-year basis going forward, of retaining the family home or rehousing at their desired level will be put into question by this tax.
For parties reliant on the net proceeds of sale expected from their family home or other property investments, it may be critical that they reconsider the value of the asset in light of these changes as many are predicting an immediate fall in the value of properties at this end of the market.
In summary, to those impacted, this new tax adds a further level of uncertainty to both the process of evaluating what is available to the parties and what they need to rehouse and meet their outgoings going forward.
Frozen tax thresholds/increased tax on income from capital
The ongoing freeze on the tax thresholds and the increased level of tax to be paid on properties, savings and dividends will mean that, across the board, people will be paying more tax and have less disposable income.
For the majority of people going through a divorce or separation, their incomes are put under increased pressure by the cost of the separation itself (including legal fees of course) and the impact of going from one to two households. It will be important for parties to carefully consider whether their net income is going to change in the short to medium term following the separation, and how this will impact on their ability to meet their outgoings. This will then, of course, play into the need for/affordability of maintenance payments, mortgage capacities and, in turn, what represents an affordable level of housing for the parties going forward.
Child benefit cap removal
The government has scrapped the two-child benefit cap so that, from April 2026, families will once again be able to receive child-related benefit support (via Universal Credit or child tax credits) for all their children, not just the first two, with a projected average increase of about £5,310 per year by 2029/30 (for those families).
The issue of which parent claims said benefits, and the impact that that has on the wider financial negotiations for the parties, will inevitably become more fraught and, I predict, this could encourage more parents to fight over their childcare arrangements in an endeavour to secure a financial benefit.
Salary sacrifice
From April 2029, there will be a limit of £2,000 per annum for the sum that can be “salary sacrificed” by employees, an option used by many to bring down their taxable income. The potential impact here will be in relation to parties’ net incomes going forward and the attractiveness of utilising salary sacrifice to retain access to funded childcare hours. These changes could lead to changes in employees’ salaries, as employers change the way they remunerate their employees, which could then impact on available income for the meeting of outgoings and the payment of maintenance, and directly impact on a child maintenance assessment.
Rayden Solicitors are experts in the financial implications of relationship or marriage breakdown, please do contact us to discuss your situation with us.
