Last minute tax planning: Have you banked your spouse? By Nichola Ross Martin

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Nichola Ross Martin counts down the days to the end of the tax year by exploring some last minute tax planning tips.

Countdown to the new CGT regime

  • Banking indexation allowances: The capital gains tax (CGT) indexation allowance together with taper relief disappears on 6 April 2008 when the new CGT regime begins. Transitional rules enabled since the original 2007 pre-budget announcement favour married couples and civil partners. Taxpayers who acquired assets before 6 April 1998 will be able to retain or bank the indexation allowance attaching to those assets for CGT purposes by making a straightforward transfer of the asset to their spouse or civil partner before 6 April 2008. The transfer, by way of gift, is treated as being on a no gain no loss basis for CGT. T...

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Correction
Yes you are right, if they are married and living together the sale value is ignored. My error was in recalling a seperation that involved a second property. Regards Peter

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Is that correct?
Section 58 TCGA which governs inter-spouse transfers appears on the face of it to be mandatory, admitting of no exceptions to the no gain/no loss rule.

If that is correct, the inter-spouse transferee will always acquire the asset at original cost plus indexation (if before 6 April 2008) and any excess over that amount actually paid will be ignored for CGT purposes when the transferee spouse finally disposes of the asset.

Don't think there is any other statute that overrides this but haven't checked so could be wrong.

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They Can
If it is a genuine sale, formalised by a solicitor, conveyanced, SLDT etc then she will be able to base future gains against the purchase price. I hope someone had run the dates, reliefs and vlaues as I have done several recently that actaully saved very little, if this is a Indexation and Taper Relief banking excercise but to the owner being in the 40% bracket. Have you run the run the numbers or is there another reason for this trade. Regards Peter

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Is "No Gain No Loss" compulsory?
Sorry to be a pain, but a client needs a definitive answer.

If he SELLS a property to his wife with money changing hands at the full Market Value, and he accepts that he would have to pay any CGT on this disposal, will the wife then have the new cost established at that value?

Obviously the NGNL rule is helpful in the normal circumstance as it means no tax bill arises, but does it preclude a genuine inter-spouse sale having the same effect for the seller and purchaser as a sale to a third party?

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Re Colin
Colin
In answer to your second query, the market value of the shares on the date of an inter-spouse transfer is not relevant to the point made in Nicola's excellent article. The point which Nicola is making is that by making such an inter-spouse transfer the indexation allowance will be preserved post 5 April 2008. Inter-spouse transfers are made on a no gain/no loss basis such that the transferee's acquistion cost of the shares will be deemed to be the transferor's acquisition cost plus indexation allowance to the date of the transfer. Therefore no loss will be created nor augmented.

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Not quite so
http://www.hmrc.gov.uk/manuals/cg4manual/CG64925.htm
The interspousal transfer regards the date of Private Residence Relief to be the date the transferor purchased/qualified it as his/her home.
and in particular
http://www.hmrc.gov.uk/manuals/cg4manual/CG64950.htm

It concerns me that Nichola has not addressed the loss of reliefs in banking Indexation at the 11th hour.

Regards Peter

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Couple of points for clarification, please....
Couple of questions for Nichola to clarify please....

1. "Spouses cannot achieve the same trick in order to bank business asset taper relief on assets which were acquired after April 1998."

Is this the same for assets which were acquired BEFORE April 1998?

2. "Banking indexation allowances".

If the market value at the date of the inter-spouse transfer is less than cost then will indexation allowance still be bank-able? I ask this because surely IA cannot "create of augment a capital loss".

Thanks in advance.

Colin


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Property outside the company
Do also look at property used by a company or partnership but owned outside. This is a very common scenario, which may qualify for Entrepreneurs' Relief after 5 April, but only when sold at the same time as you withdraw from the business.

The key problem is that if you have charged rent to the company or partnership this will partially displace the ER (on a percentage of market rent basis). You have a number of options to consider :
1. Stop charging rent asap. The gain will the attract ER on a time apportioned (over the whole period of ownership) basis.
2. Transfer property to company, attracts Indexation and Taper (BATR) and also protects IHT in the future. BUT you have a potential SDLT liability at main property rates on the VALUE (not the gain) and you lose any scope for flexibility in the future use of the property such as third party letting (which could prompt loss of ER on the SHARES later). No real palatable solutions, but pretty urgent that you address this asap (even if not before 6 April).

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Plan it Properly
If a property was previuos lived in by the owner and the property is being rented out and utilising Letting Relief and they transfer the asset 100% to there spouse who has not lived in the property then Letting Relief is lost. You must run the numbers before jumping in. Regards Peter

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Stamp duty
If the spouse takes over the mortgage when the gift is made that will be treated as consideration, so there will be stamp duty to pay.

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Crisp and eloquent
Great work as usual, Nichola.

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