When it comes to taxing any kind of asset transfers, husband and wife (and civil partners) are usually treated as a single unit.
When transferring assets between spouses (or civil partners) we
would look at your tax planning options to make sure each spouse can use the
various tax exemptions available to them. If one spouse owns all the family
assets this would not be possible.
It’s generally a good idea to have an “equalisation of
estates”. This ideally means each spouse will:
- Own assets that amount to at least the value of
the inheritance tax (IHT) nil rate band (£325,000 for the tax year 2019/20)
- Own assets which, upon a sale, enables full use
of the capital gains tax (CGT) annual exempt amount (£12,000 for the tax year
- Own assets generating enough income to mitigate
any exposure to higher rate income tax.
Inter-spouse transfers are exempt transfers and so not subject
to IHT if the spouses are married, although not necessarily living together. As
mentioned above, transfers from one spouse to the other to ensure each spouse’s
estate is at least £325,000 can then be made without attracting any inheritance
One exception to this rule applies to any transfers from a UK domiciled to a non-UK domiciled spouse. In this case,
only the first £55,000 is exempt.
Capital gains tax
Although not technically exempt from CGT, the
calculations usually result in no charge arising on inter-spouse transfers
provided spouses are married and living together.
For example, if a husband acquires shares of
£10,000 and transfers them to his wife when they are worth £13,000, the shares
are still transferred at a value of £10,000.
People often forget pensions but, as research
suggests, around 43% of wealth is held in private
pensions followed by 31% in property. If a couple divorces, there are three
options to consider when splitting pensions:
- Attachment or earmarking: this
takes place when one party starts to take from their pension, it means the
other spouse is entitled to a share
- Offsetting: this involves the value of the pension being offset against
other assets, such as the family home. This can be the simplest option, giving
divorcing couples a clean break
- Sharing: this
involves one spouse receiving a share
of the other’s pension, which is either held in the same scheme or transferred
to a personal pension scheme. This is a popular option, particularly where
there is a lack of alternative assets to split.
Whilst both parties can agree an offset order
between them, a pension sharing or attachment order requires the court’s
If you would like to discuss any of the issues covered in this article
or the tax implications of transferring your assets, give us a call on 01761
241 861 or email us today. We can help
you identify tax efficiencies for your own or your family’s situation.
We will be pleased to advise you or to invite you into our offices
in Paulton, near Bristol and Bath, for a consultation.