In the UK, spouses or civil partners are separate individuals for capital gains tax purposes (CGT). This means each individual will have their share of taxable gains or losses and will pay their own capital gains tax liability. However, you may be treated as connected for capital gains tax purposes, which can trigger some additional capital gains rules applicable to your circumstances.
When a property or interest in a property is transferred to another spouse/civil partner, there is a disposal by the transferor spouse and an acquisition by the transferee spouse for capital gains tax purposes.
No Gain / No Loss (NGNL) transfer
The disposal of land or property or interest in land or property would deemed to be taken
place at no gain no loss if the couple is:
- married or in a civil partnership, and
- living together during the tax year when the property was transferred
The no gain no loss rule only applies to transfers between spouses. It does not apply to transfers between parents and children, brothers and sisters, or partners who are not married or in a civil partnership.
This no gain no loss rule applies only to disposals between spouses. It does not apply to any transfer/gift of land and property between parents and children, brothers and sisters, or partners who are not married or are in a civil partnership.
The no gain no loss rules do not apply where the transfer of the property or interest in property has been made at the death bed.
Transfer of property to a non-resident spouse
Nothing in the legislation states that non-resident rules are not applicable where spouses are married or in a civil partnership and living together but one spouse of non-resident. Therefore, the land and property or any interest in land and property can be transferred from a UK resident spouse to a non-UK resident spouse at no gain or loss, and if the property is later sold, there would potentially be no UK capital gains tax. However, we also need to consider the rules related to temporary non-residents when considering such tax planning. In practice, it would be very rare if the spouses are married or in a civil partnership and living together, but one spouse is a UK resident, but the other spouse is a non-resident in the UK.
Consideration paid by the transferee Spouse
The no gain no loss rules will still apply even if the transferee has paid full market value for the transfer of the land and property or interest in land and property. It means that the transferee’s spouse base cost is the amount of deemed proceed rather than the amount paid. That would be disadvantageous to spouse who has paid more than the deemed proceeds in exchange for the asset. The transferee spouse would be better off paying nothing or limiting the amount to deemed proceeds.
Example – Transfer of land and property between Spouses
In 2023, Mr K Leung transferred his property to his wife, Mrs Leung. Mr K Leung bought this property in 2010 for £80,000. This transfer would be a disposal by Mr Leung for capital gains tax purposes. However, as it is a transfer between married couples who are living together, the transfer would be treated as under no gain no loss rules. The calculation would be as follows:
Deemed proceeds
Less: cost of acquisition
Chargeable gain
£80,000
(£80,000)
Nil
Mr K Leung is deemed to have been paid by Mrs Leung for such a sales proceed, which will create no gain no loss. The no gain no rules will apply regardless of whether Mrs Leung paid any consideration. When Mrs Leung sells the property in future, the base cost of Mrs Leung would be £80,000.
