Is your spouse paying more tax than necessary?
Many married couples and civil partners overlook simple planning opportunities. Consequently, they often pay more Capital Gains Tax than they need to. Therefore, it pays to ask an important question. Specifically, is your spouse paying more tax than necessary?
Separate tax treatment for couples
Married couples and civil partners face separate tax assessments for Capital Gains Tax (CGT). As a result, each person holds their own annual tax position. However, with careful planning, couples can often reduce their combined tax bill significantly.
Transfers on a ‘no gain, no loss’ basis
Where spouses or civil partners live together, most asset transfers between them qualify for special treatment. Specifically, these transfers happen on a ‘no gain, no loss’ basis. Consequently, no immediate CGT charge arises at the point of transfer.
Instead, the receiving spouse inherits the original purchase cost. Later, when they dispose of the asset, HMRC calculates the gain from that original cost.
Using allowances and lower tax rates
This approach becomes especially useful in several situations. For example, one spouse may pay tax at a lower rate. Alternatively, one partner may have unused CGT allowances available.
Therefore, transferring an asset before sale can create meaningful savings. Ultimately, the gain may be taxed far more efficiently. So again, is your spouse paying more tax than necessary?
Getting ownership right
Importantly, genuine ownership matters greatly for CGT purposes. If one spouse beneficially owns an asset, that spouse must report the gain. Consequently, couples should regularly review how their assets are held.
Moreover, legal ownership should reflect the intended beneficial ownership. This point becomes especially important with jointly owned assets, including:
- Investment portfolios
- Rental properties
- Shares in family companies
Special rules on separation and divorce
Additionally, special rules apply when couples permanently separate. Fortunately, transfers between former spouses or civil partners can still qualify for no gain, no loss treatment.
Generally, this treatment continues until the end of the third tax year after separation. Furthermore, transfers made under a formal divorce or separation agreement enjoy even more flexibility. Similarly, transfers under a court order can continue indefinitely without any time limit.
Get expert advice on your CGT position
Are you unsure whether your family arrangements remain tax efficient? If so, please get in touch with our friendly team today. We will happily review your assets and highlight useful planning opportunities. Contact us now to book a free initial consultation.
