You own the house which you and your spouse live in as your main home. If you transfer all or part of it to them, how will it affect your respective capital gains tax positions?
Transfers between spouses
Our subscriber is right to question the tax position before he transfers a share of his home to his wife. The rules for married couples living together changed in April 2020 and perhaps he recalls reading something which has set alarm bells ringing. Before looking at the rules he needs to understand those which apply for transfers of assets between individuals who are married or in a civil partnership.
No gain no loss
From the date a marriage or partnership is registered a transfer from one spouse/partner to the other is treated as if it were a sale at a price that results in neither a capital gain nor a loss. This is called the “no gain no loss” rule. It boils down to the transfer from one spouse/civil partner to the other being treated as if it were a sale equal to the cost of the asset (for capital gains tax (CGT) purposes). The no gain no loss rule applies even if one spouse/partner pays the other for the asset.
Example. Martin and Jackie are just married. Martin makes a gift of a ring he inherited from his mother to Jackie. It’s worth £10,000. When Martin inherited it was valued at £4,000. The gift is treated as if Martin sold the ring for £4,000, meaning he made neither a gain nor a loss. Jackie is treated as having paid £4,000 for the ring. If she sells it when it is worth say £15,000 her capital gain will be £11,000.
Transferring a share of your home
The no gain no loss rule applies to the transfer of a property but with the added complication of private residence relief (PRR). If prior to 6 April 2020 one spouse/partner transferred a share of their home to the other, the receiving spouse/partner would have been treated as owning the property from the same date as the transferring spouse but without their entitlement to PRR. If on a later sale of the property there’s a gain, the spouse/partner who transferred a share might be entitled to more PRR than the other; that spouse/partner might therefore end up with a tax bill.
Tip. Since 6 April 2020 where one spouse/civil partner transfers, or has transferred to the other, a share of a property, the receiving spouse/partner inherits the same entitlement to PRR.
Selling your home after a transfer
Putting together the rule for intra-spouse/partner transfers and those for PRR since 6 April 2020 means there’s no capital gains tax to worry about if one spouse or civil partner transfers their all or part of a share in their main residence to the other. If later they sell the property they’ll both be entitled to the same PRR.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.