Chapter: 2 - Inheritance Tax Mitigation: The Basics

Transfers between spouses/civil partners: the Capital Gains Tax position

2.10.3

By contrast, the rule that a transfer of assets between such individuals takes place on a ‘no gain no loss’ basis (TCGA 1992 s58) depends upon the couple living together at some time in the year of gift, even if the transfer follows the date of separation.  The test is the old Income Tax one for mortgage interest relief purposes, viz that if there is a separation it is likely to be permanent (now in ITA 2007 s101).  Once the separation (or divorce) has happened, a transfer in a subsequent year will be treated for CGT purposes just as any other transfer between individuals, that is, a disposal with the market value being treated as received by the disponor.  Interestingly, while the basic exemption applies, it matters not whether the disposal is by way of sale or gift: even if by way of sale the actual sale proceeds are disregarded and the ‘no gain no loss’ rule is applied, so putting the transferee spouse/civil partner in the shoes of the transferor in terms of inheriting his historic base cost.