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ACCA Strategic Professional · Advanced Taxation (UK) · Appropriateness of planning measures to a taxpayer's circumstances and objectives

Mia, an additional rate taxpayer, is advised to transfer shares to her spouse before a sale so that the gain is taxed at the spouse's lower rate. The couple are married and living together, and the transfer is an outright, unconditional gift. How should this planning be regarded?

This is acceptable planning. A transfer between spouses living together is no gain/no loss, and if the gift is outright the spouse is taxed on the later sale. The spouse can use their own £3,000 annual exempt amount and lower rate bands. No waiting period applies for capital gains tax.

  1. AAcceptable planning, because an inter-spouse transfer is no gain/no loss and the spouse can then use their own annual exempt amount and lower rate bandsCorrect
  2. BTax evasion, because the sale proceeds are taxed on a different person
  3. CUnacceptable avoidance, because any transfer motivated by tax saving is disregarded by HMRC
  4. DAcceptable only if the spouse waits seven years before selling the shares

Explanation

Transfers between spouses living together are on a no gain/no loss basis and an outright gift means the spouse is taxed on the later disposal. The spouse uses their own annual exempt amount of £3,000 and the 18% rate where bands allow. There is no seven-year rule for CGT. Tax motive alone does not make planning unacceptable.

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