Special capital gains tax rule for transfers of assets between spouses

Special capital gains tax rule for transfers of assets between spouses

Special-capital-gains-tax-rule-for-transfers-of-assets-between-spouses

Special capital gains tax rule for transfers of assets between spouses

Need Accountancy Support?Book a meeting

Although married couples and civil partners are assessed individually for capital gains tax purposes and each has their own annual exempt amount, a special rule allows them to transfer assets between them at a value that gives rise to neither a loss nor again. This can be very useful from a tax planning perspective. The special rule applies only where the spouses or civil partners are living together or, where they separate, until the end of the tax year of separation.

Operation of the rule

For the purposes of the rule, any actual consideration that may pass between the spouses or civil partners is ignored. Instead, the amount of the consideration is deemed to be the amount that gives rise to neither a gain nor a loss. This will be the:

  • the original cost of the asset; plus
  • any subsequent allowable costs.

Example

Sue and Simon have been married for 27 years. Sue purchased a painting ten years ago for £10,000. She spends £500 having the painting re-framed.

She sells it to Simon for £3000.

However, as the no gain/no loss rule applies, the actual consideration is ignored, and Sue is deemed to have sold the painting to Simon for £10,500. Rather than making a loss of £7,500 had the actual consideration been used, she breaks even. The deemed proceeds are £10,500, and the original cost plus subsequent allowable expenditure is also £10,500.

Sue is, however, unable to utilize the actual loss. Likewise, had the actual consideration been in excess of the allowable cost, she would not have been taxed on the gain.

Simon takes on Sue’s base cost, standing in her shoes for any subsequent disposal.

Making use of the rule

The rule can be useful to change ownership of an asset prior to sale to make the best use of available annual exempt amounts by transferring an asset, or a share of an asset, to a spouse or civil partner prior to sale.

Example

Sue and Simon decide to sell the painting in October 2021, having secured a buyer who is willing to pay £20,000 for it. In May 2021, Sue sold an antique vase, realizing a gain of £13,000. David has not made any disposals in 2021/22 and has no plans to do so.

As Sue has already used up her annual exempt amount for 2021/22 of £12,300, if she were to sell the painting, the gain of £9,500 would be liable to capital gains tax in full. If Sue is a higher rate taxpayer, she would pay a capital gains tax of £1,900 on the gain on the painting (£9,500 @ 20%).

However, as Simon still has his annual exempt amount available, if they make use of the no gain/no loss rule to transfer the painting to Simon prior to sale, with Simon then selling it to the third party, the gain of £9,500 would be covered by Simon’s annual exempt amount and the whole gain would be tax-free.

Our Offices

Makesworth Accountants in Harrow

Unit-101, First Floor,
Cervantes House, 5-9 Headstone Road,,
Harrow, London HA1 1PD
United Kingdom (UK)
Phone: 020 7993 8850
Fax: 020 7183 5320
Email: info@makesworth.co.uk

Makesworth Accountants in Central London

63/66 Hatton Garden
Fifth Floor Suite 23,
Central London, London EC1N 8LE
United Kingdom (UK)
Phone: 020 7993 8850
Fax: 020 7183 5320
Email: info@makesworth.co.uk

Makesworth Accountants in Ilford

Balfour Business Centre, Suite B15
390-392 High Road,
Ilford, London IG1 1BF
United Kingdom (UK)
Phone: 020 7993 8850
Fax: 020 7183 5320
Email: info@makesworth.co.uk

Need Accountancy Support?

For information on bespoke training, or if you have any other questions for Makesworth Accountant, please fill in your details below



    By submitting the form, you agree with the storage and handling of your data to contact you to arrange a free consultation with us and to receive latest updates by Makesworth Accountants in accordance with our Privacy Policy

    Proud to be featured in

    Happy with our services? Please leave us a Google Review. Click here