Personal Income Tax (PIT) on property division

For a long time, one of the most contentious issues in the process of marital property division was the obligation to pay Personal Income Tax (PIT) on monetary compensation paid by one spouse to another. Previously, tax authorities could consider such a payment, made after divorce by agreement, as taxable income.

In 2024, the position of regulatory bodies underwent cardinal changes, significantly simplifying the property division procedure.

Previously, there was a non-obvious norm: if property division occurred during the marriage or by court decision (including after divorce), compensation for a larger share was not subject to PIT, as it was regulated by Article 38 of the Family Code of the Russian Federation.

However, if the division occurred after the dissolution of marriage based on a voluntary notarized agreement, tax authorities could view the monetary payment as income within the framework of a civil law transaction, since the spouses ceased to be close relatives. This created a significant tax risk for the recipient of the compensation.

In 2024, the Ministry of Finance of Russia revised this approach, guided by the principle that the division of jointly acquired property does not constitute grounds for the emergence of taxable income.

According to current clarifications (including letters from 2024), monetary compensation paid by one spouse to another during the division of jointly acquired property is not subject to PIT, regardless of whether the division occurs during the marriage or after its dissolution.

1. General principle: jointly acquired property, received as a result of division, does not generate income subject to PIT.
2. After divorce: even if compensation is paid after the official dissolution of marriage, the very fact of redistribution of shares in common property serves as the basis for tax exemption.

Although the issue of compensation for a share has been resolved in favor of taxpayers, it is important to remember situations where tax obligations remain:

1. Personal property: if a spouse receives compensation not for their share in jointly acquired property, but for the assignment of their personal property (received as a gift or by inheritance), such a payment may be considered as income from sale.
2. Property sale: if a spouse who received a share as a result of division decides to sell this property before the expiration of the minimum ownership period, they may face the obligation to pay PIT.

The new legislative position eliminates a significant tax risk that previously existed when formalizing property division through a notarized agreement after divorce. Property division between spouses should now not lead to the emergence of PIT obligations.

For precise consultation regarding your situation and to prevent any potential tax risks when selling or transferring property to third parties, we recommend consulting qualified lawyers. Learn more about our services in Family law.