Last week the Supreme Court delivered its in Standish v Standish [2025] UKSC 26. The case examined the concepts of “matrimonial” or “non-matrimonial” assets when considering financial orders on divorce. Assets which are matrimonial are subject to the sharing principle, whereas non-matrimonial assets are not.
In 2017, Mr Standish transferred investments worth £77.8m to his wife and which were worth a little over £80m at the point of trial (known as the ‘2017 assets’). This was done as part of a tax planning exercise. Mr Standish was shortly to become UK deemed domiciled, meaning that his non-UK assets will have then fallen within the scope of UK Inheritance Tax. The intention was for Mrs Standish, who was not UK domiciled, to in due course establish trusts in Jersey to hold the assets for the benefit of their two children (and potentially Mr Standish). Draft trust deeds were prepared and appropriate trustees selected. However, the trusts were never established, and Mrs Standish kept the assets in her personal name. The marriage subsequently broke down, with decree nisi being pronounced in September 2020.
At the time of the first instance decision, the couple’s combined assets total £132.6m, with £95.7m of this being held in Mrs Standish’s name (including the c.£80m ‘2017 assets’). Although Mr Justice Moor recognised the pre-marital source of the 2017 assets, he agreed with the wife that the transfer of the c.£80m matrimonialised the property and therefore made it subject to the sharing principle (of an equal split). and the source of the funds was relevant to determining the percentage split, and so awarded Mr Standish a 66% share of the assets, with his wife’s share being £45m (34% of the total assets).
Both parties appealed this judgement. Mr Standish argued that the assets contained in the 2017 transfer had not become matrimonial assets and were therefore not subject to the sharing principle. The Court of Appeal considered that the source of an asset is the key factor when considering whether or not it is a matrimonial asset and held that the assets had not become matrimonialised in 2017. Consequently, Mr Standish was awarded an 81% share in the couple’s assets, with Mrs Standish’s share being reduced to £25m.
The case made its way to the Supreme Court in May this year, which dismissed Mrs Standish’s appeal. In doing so, the court found that the way in which the parties treated the assets (particularly as to whether they treated them as shared) is a determining factor in whether or not they are matrimonialised (and therefore, subject to the sharing principle).
Tax considerations
It is not uncommon for assets to pass between spouses in the course of tax planning. However, it is important to ensure that any transfers are genuine and that the spouse is not considered as a mere conduit. By way of an example, a gift from one spouse to the other with the intention that the assets are immediately settled on trust runs the risk of being treated as the first spouse settling the assets directly.
This is known as the “Ramsay Principle”, which originated from the case of Ramsay v IRC. The principle provides that where a transaction has a series of pre-ordained steps that serve no purpose other than to save tax, the series of transactions can be taxed as a whole with the intervening steps being ignored. Typically, therefore, where a series of transactions is contemplated, it is important that each step is considered on its own merits.
In some ways, the Standish case is a good example of this. Mrs Standish held the assets for a number of years after the original gift to her and failed to establish the originally proposed offshore trusts. She had full control of the assets and could have disposed of them in any way she thought fit.
The requirement that a transfer for tax purposes must have the intention of being an unreserved gift sits uneasily with the Supreme Court’s decision, in which they wrote that “transfers of capital assets with the intention of saving tax, do not, without some further compelling evidence, establish that the parties are treating the capital asset as shared between them.” The significant gift from Mr Standish to his wife, followed by her sole control and possession of the assets over 8 years, did not evidence any mutual intention to share the initially non-matrimonial property. On the other hand, for the tax scheme to have been effective, it would have been important that the transfer was a genuine, unreserved gift. The question now remains, what further conduct would have sufficed to consider that there was an intention to share, over time?
What does this mean for couples?
It is not fatal that the tax and matrimonial approaches to this issue sit uneasily with each other. Those planning to ask their spouse to assist with their tax planning will still need to be aware of the Ramsay Principle. Equally, following the Standish case, they should also be cautious of the intended impact on their matrimonial position and should express clearly whether the tax planning consequently means that this asset should be considered ‘shared’ and treated as ‘matrimonial’ in the event of a divorce.
The case provides some comfort that a transfer made in the course of tax planning will not (without more) evidence of an intention to share and therefore jeopardise the spouse who originally owned the assets, should the marriage breakdown in near future. However, to reinforce the position and provide absolute clarity, individuals should consider a nuptial agreement alongside such tax planning exercises, to make explicit whether the transferred asset is intended to be shared or remain separate in the event of divorce.
Joined up Family and Private Client advice can help to mitigate these issues and ensure that everybody understands the consequences of intra-family transfers.
Alex Hunt is a Legal Director and Francesca Skakel is an Associate at Birketts LLP
