Should you transfer investments to your spouse before selling?

The main reason is that each person has their own Capital Gains Tax allowance.

This means that, in many cases, both you and your spouse or civil partner can use your annual allowances instead of relying on just one person’s.

If only one of you owns the investment, only that person can usually use their allowance when it’s sold. By transferring some of the investment first, you may be able to make use of both allowances.

Imagine you own shares that have increased significantly in value.

Rather than selling all of them yourself, you transfer half of the shares to your spouse before they’re sold.

You now each own part of the investment.
When the shares are sold, each of you calculates your own capital gain and uses your own annual Capital Gains Tax allowance.

This can reduce the amount of gain that’s subject to Capital Gains Tax.

An example…
Imagine you own shares that originally cost £10,000.

They’re now worth £20,000, giving you a gain of £10,000.

If you sell them all yourself:

• You have a £10,000 capital gain.
• You can use your annual £3,000 CGT allowance.
• The remaining £7,000 gain may be subject to Capital Gains Tax.
  Instead, you transfer half the shares to your spouse before selling them.

You now have:

• A £5,000 capital gain each.
• A £3,000 CGT allowance each.

Together, you’ve been able to use £6,000 of annual allowances instead of just £3,000, meaning just £4,000 of the gain may be taxable.

In most cases, no.

Transfers of assets between spouses or civil partners who are living together are generally made on a ‘no gain, no loss’ basis.

This means the transfer itself doesn’t usually trigger Capital Gains Tax.

Instead, your spouse effectively takes over your original purchase cost and any gain continues to build until the investment is eventually sold.

Does this work for everyone?

No, this strategy is generally only available to you if you’re:

Married, or

• In a civil partnership.
• Simply living together isn’t enough.

The rules can also be different if you’re separated or living apart, so it’s important to check the details if your relationship or living situation is complicated.

Yes, it can.

The rate of Capital Gains Tax you pay doesn’t just depend on how much profit you’ve made: it can also depend on your taxable income.
If you’re a basic-rate taxpayer, you may pay a lower rate of Capital Gains Tax than someone who pays higher-rate or additional-rate Income Tax (although the exact rate also depends on the type of asset being sold).

That means that if one spouse pays tax at a lower rate than the other, transferring investments before selling them could reduce the overall Capital Gains Tax bill for the couple.

For example, imagine one spouse is a higher-rate taxpayer and the other is a basic-rate taxpayer. By transferring some of the investments before they’re sold from the higher-rate taxpayer to the basic-rate taxpayer, the gain may be taxed partly at the lower Capital Gains Tax rate instead of entirely at the higher rate.

Combined with making use of both spouses’ annual Capital Gains Tax allowances, this can make a significant difference to the amount of tax you pay as a couple.

This is why planning ahead, rather than waiting until after you’ve sold an investment, can be so valuable.

Many chargeable investments can be transferred between spouses or civil partners in this way.

This includes shares, investment funds and many other investments held outside an ISA or pension.

However, investments already held inside an ISA or pension can’t simply be transferred to your spouse.
These accounts belong to the individual account holder.

Not necessarily.

Tax is only one part of the decision.

Transferring investments changes who legally owns them, so you should only do this if you’re genuinely happy for your spouse or civil partner to become the owner.

It’s also worth considering your wider financial plans and any other tax implications before making a decision.

Capital Gains Tax (CGT): A tax you may have to pay on the profit you make when selling certain investments or assets.

Capital gain: The profit you make when you sell an investment or other asset for more than you paid for it.

Capital Gains Tax allowance: The amount of capital gains you can usually make each tax year before Capital Gains Tax may apply.

No gain, no loss: A rule that usually allows assets to be transferred between spouses or civil partners without triggering Capital Gains Tax at the time of the transfer.

Civil partnership: A legally recognised relationship that gives couples many of the same legal and tax rights as marriage.