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ACCA Strategic Professional · Advanced Taxation (UK) · Legitimate tax planning measures

Which statement best describes a legitimate capital gains tax planning measure for a married couple, Sam and Tara, who are both higher rate taxpayers, before Sam sells shares showing a large gain?

Transferring some shares to the spouse before the sale is legitimate planning. The transfer is on a no gain, no loss basis, so the spouse's annual exempt amount (£3,000) can be used on her share of the gain, and a lower rate band may also apply.

  1. ATransfer some shares to Tara before the sale, as spouse transfers are at no gain no loss, so that Tara's annual exempt amount can be usedCorrect
  2. BSell all the shares in Sam's name, because transfers between spouses are chargeable at market value
  3. CTransfer the shares to Tara after the sale so that the gain is assessed on her
  4. DAsk Tara to sell on Sam's behalf while Sam retains all the sale proceeds

Explanation

Transfers between spouses living together are made on a no gain, no loss basis, so a gift before sale lets Tara use her own £3,000 annual exempt amount and, if she were a lower rate taxpayer, the 18% rate. Gifting after the sale does not shift the gain. Spouse transfers are not chargeable at market value.

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