Taxation (UK) · The basic principles of computing gains and losses

Spouse Transfers and Connected Persons in Capital Gains Tax

Updated 11 October 2026 · Fact-checked

Transfers between spouses or civil partners living together are no gain no loss. The receiver takes over the giver's original cost. Disposals to other connected persons are treated as made at market value, and any loss can only be set against gains on disposals to that same person. Use spouse transfers to use both annual exempt amounts and lower bands.

Understand Husband and Wife Transfers and Connected Persons

Capital gains tax (CGT) normally treats a gift as a sale at market value. Spouses and civil partners are different. If they are living together in the tax year of the transfer, an asset passes between them on a no gain no loss basis. No CGT arises when the asset moves.

The receiving spouse steps into the giver's shoes. They take the giver's original cost (and indexed or pooled position where relevant) and the giver's acquisition date. The gain is taxed when the receiver later sells to a third party. This makes spouse transfers a planning tool, because each person has their own annual exempt amount of £3,000 and their own rate bands. CGT is charged at 18% to the extent that gains fall within the unused basic rate band of £37,700, and at 24% above it. If one spouse has unused band or AEA, move the asset to them before the sale.

The second rule covers connected persons. A sale to a connected person, or a gift to one, is treated as made at market value, even if the price paid was lower. Connected persons include your spouse or civil partner, your relatives (brothers, sisters, ancestors and lineal descendants) and their spouses, and your spouse's relatives and their spouses. Business partners are also connected, as are their spouses and relatives. The exception is an acquisition of a partnership asset under genuine commercial arrangements. A company is connected with a person who controls it, or with that person together with persons connected with him who control it. Persons acting together to secure or exercise control of a company are also connected. A trustee of a settlement is connected with the settlor. Uncles, aunts, nephews, nieces and cousins are not connected.

The anti-avoidance rule on losses stops you creating a loss by selling cheaply to a relative. A loss on a disposal to a connected person cannot be set against your other gains. It can only be set against gains you make on disposals to the same connected person, in the same year or later years. Remember that the no gain no loss rule overrides market value for spouses, so the loss restriction matters for other connected persons.

Key rules to remember

Spouse or civil partner transfer: Deemed proceeds = giver's cost (no gain, no loss); Applies only if the couple are living together in the tax year of transfer. The receiver inherits the giver's base cost and acquisition date.
Connected person disposal: Proceeds = market value of the asset; Used instead of the actual price for sales or gifts to connected persons. The acquirer's cost is also market value.
Connected person loss restriction: Loss relieved only against gains on disposals to the same connected person; Unused loss is carried forward for later gains on disposals to that person. It is not deducted from other gains.
CGT rates: 18% within unused basic rate band; 24% above it; Basic rate band is £37,700. Use the taxable income first, then the gain. The annual exempt amount is £3,000.
Gain after annual exempt amount: Taxable gain = chargeable gains − losses − £3,000 AEA; Each spouse has their own AEA. An unused AEA cannot be transferred to the other spouse.

How to solve Husband and Wife Transfers and Connected Persons questions

Use this method for any question on transfers between spouses, planning or connected person sales.

1Identify the relationship. Is the other party a spouse or civil partner living with the transferor, or another connected person, or unconnected?
2If a spouse, state that the transfer is no gain no loss. Set deemed proceeds equal to the giver's cost and show no gain or loss for the giver.
3Give the receiver the giver's original cost and acquisition date. Compute their gain on any later sale to a third party.
4If a connected person who is not a spouse, replace the actual price with market value. Compute the gain or loss using market value for proceeds.
5If there is a loss on a connected person sale, ring-fence it. Set it only against gains on disposals to the same person.
6Deduct other allowable losses, then the annual exempt amount of £3,000 for each individual who has gains.
7Work out the unused basic rate band for each person after their taxable income. Tax gains at 18% within that band and 24% above it.
8For planning questions, compare the tax if each spouse sells and state the saving from using the lower earner's AEA and basic rate band.

Quickest way: Spouse planning in three checks

When to use it: Use when a question asks how a couple can reduce CGT on a planned sale.

Check who has unused AEA. Transfer enough of the asset so each spouse can use their £3,000.
Check who has unused basic rate band. Gains falling in that band are taxed at 18%, not 24%.
Transfer before the sale, with the receiver then selling to a third party. Tax is then calculated using the giver's original cost. State that the couple must be living together in that tax year.

Common mistakes in Husband and Wife Transfers and Connected Persons

Charging CGT on a gift to a spouse
Students apply the normal rule that a gift is a disposal at market value.
Fix: For spouses or civil partners living together, deemed proceeds equal cost, so there is no gain and no loss.
Giving the receiving spouse the market value as base cost
Students mix up the spouse rule with the connected person rule.
Fix: The receiving spouse takes the giver's original cost and acquisition date, not market value.
Setting a connected person loss against all gains
Students apply the general loss rules.
Fix: A loss on a sale to a connected person is only relieved against gains on disposals to the same person.
Using the actual price on a sale to a relative
Students forget that connected person disposals use market value.
Fix: Always check the relationship. If connected, use market value as proceeds, even if the price was lower or higher.
Treating uncles, cousins or nephews as connected
Students assume all family members are connected.
Fix: Connected relatives are limited to brothers, sisters, ancestors and lineal descendants, with their spouses, and the spouse's relatives. Wider family is not connected.
Ignoring the AEA or basic rate band of the lower earner
Students compute the tax for one person only.
Fix: Compute for each person. Use each person's AEA and their unused band, and set gains against income-taxed bands in the right order.

Worked examples

Example 1

Tom, a higher rate taxpayer, owns shares bought for £10,000 and now worth £40,000. He has no other gains this year. His wife Beth has no taxable income and no gains, and they live together. Compare the CGT if Tom sells the shares for £40,000 with the CGT if he first gives them to Beth and she sells them for £40,000. Use the rates in the Finance Act 2025 tax tables and the AEA given.

Show the solution

Tom sells directly: gain = £40,000 − £10,000 = £30,000.
Less AEA £3,000 = taxable gain £27,000.
Tom is a higher rate taxpayer, so tax = £27,000 × 24% = £6,480.
Gift to Beth is no gain no loss, so Beth takes Tom's cost of £10,000.
Beth sells for £40,000: gain = £30,000. Less AEA £3,000 = £27,000.
Beth has no taxable income, so her whole £37,700 basic rate band is available. The gain of £27,000 is all within it.
Tax = £27,000 × 18% = £4,860.
Saving = £6,480 − £4,860 = £1,620.

Answer: Selling directly costs £6,480. Transferring to Beth first costs £4,860. The saving is £1,620, as Beth uses her AEA and basic rate band.

Example 2

Sasha sold a painting costing £80,000 to her brother for £20,000. Its market value was £50,000. Later in the same tax year she sold another asset to her brother, with a gain of £12,000 on a market value basis. She also made a gain of £25,000 on a sale to an unconnected buyer. Compute her taxable gains and any loss carried forward.

Show the solution

Her brother is a connected person, so use market value of £50,000 for the first sale, not £20,000. Her brother also acquires the painting at its market value of £50,000.
Loss = £50,000 − £80,000 = £30,000.
This loss can only be set against gains on disposals to her brother.
Set it against the £12,000 gain on the second sale to her brother. The gain becomes nil. Loss used = £12,000.
Loss remaining = £30,000 − £12,000 = £18,000, carried forward against future gains on disposals to her brother.
The £25,000 gain on the sale to the unconnected buyer cannot be reduced by the loss.
Less AEA £3,000 = taxable gain £22,000.

Answer: The gain on the brother sale is nil. A loss of £18,000 is carried forward for gains on disposals to her brother. Sasha's taxable gain is £22,000 after the AEA.

Exam tips

Look for the words wife, husband, civil partner or living together in the scenario. They signal the no gain no loss rule.
In planning questions, calculate tax for both spouses and state the saving. Show the 18% and 24% bands and use £37,700 less taxable income.
State the deemed proceeds and base cost in words. For example: 'Transfer at no gain no loss, so Beth takes Tom's cost of £10,000'.
In objective tests, check who the relative is. A brother's wife is connected, but a cousin is not.
If the loss arises on a connected sale, show it ring-fenced and state how much is carried forward.

Practice questions from The basic principles of computing gains and losses

Husband and Wife Transfers and Connected Persons: frequently asked questions

What does no gain no loss mean for spouse transfers?

It means the transferor is treated as receiving proceeds equal to their cost, so no gain or loss arises. The receiving spouse takes the same cost and acquisition date. Tax is only charged when the asset is sold outside the couple.

Does the spouse transfer rule always apply?

It applies when the couple are married or civil partners and living together in the tax year of the transfer. If they are separated in that year, the transfer is treated as a normal disposal at market value.

Can I use my spouse's annual exempt amount?

You cannot transfer an AEA itself. You can transfer an asset to your spouse so that their own £3,000 AEA is used against the gain when they sell. The same applies to their unused basic rate band.

Why are losses on connected person sales restricted?

The rule prevents someone creating a loss by selling to a relative at an undervalue. The loss can only be used against gains on disposals to that same connected person, now or in later years.

Who counts as a connected person for CGT?

Your spouse or civil partner, relatives such as siblings, parents, grandparents and children, their spouses, your spouse's relatives, and business partners together with their spouses and relatives. Acquisitions of partnership assets under genuine commercial arrangements are an exception. Certain companies and trustees are also connected. Uncles, aunts, nephews, nieces and cousins are not included.