Tax Insider Tip: Utilising Spouse’s Or Civil Partner’s Annual CGT Exemption

Each spouse or civil partner has their own capital gains tax annual exempt amount. Further, assets can be transferred between spouses and civil partners at a value that gives neither a gain nor a loss. By transferring assets into joint names prior to sale or to your spouse or civil partner, you can utilise your spouse’s or civil partner’s annual capital gains tax exempt amount as well as your own, to the extent that their exempt amount remains available.

For 2014/15 the annual exemption is £11,000, which means that a couple can realise gains of up to £22,000 before paying any capital gains tax.

Transfers between spouses and civil partners are treated as a no gain/no loss transaction and hence the spouse/civil partner steps into the shoes of the other holder, taking over their base cost and length of ownership.

This can be especially useful when selling investment properties, although stamp duty land tax considerations need to be taken into account.

Example:
Mr Smith (a higher rate taxpayer) wants to sell shares in 2014/15 which will realise a taxable gain of £21,000.

If he goes ahead and sells the shares and utilises his annual exemption, he will pay capital gains tax on £10,000 @ 28% = £2,800.

However, if Mr Smith transfers half of the shares to his wife prior to the sale then Mr and Mrs Smith would each have a taxable gain of £10,500, which would be covered by their annual exemption of £11,000.

By using their annual exemptions (£11,000 each) the shares can be sold without triggering a capital gains tax liability leaving them £2,800 better off.