I am going to continue my look at capital gains tax fundamentals this week with a reminder that a husband or wife or civil partners are separate individuals for CGT purposes so the calculation of their gains or losses and tax are as if they were single individuals.
However, a married couple or civil partners are connected persons under section 286 TCGA 1992 so transfers of assets between them (even gratuitous transfers, which most would be) would normally be for deemed consid-eration equal to the market value at the date of transfer.
Thankfully, though, for a transfer which takes place in a year of assessment at some time in which the couple are living together the market value rule is overridden by section 58 TCGA 1992 under which any transfer takes place at no gain/no loss.
It is this happy state of affairs that enables a couple to maximise the use of the annual CGT exemption between them even when assets to be disposed of that will trigger a gain are concentrated initially in the ownership of just one of the couple.
And even beyond the annual exemption, when the capital gains tax rate is linked to the income tax rate, there can be worthwhile advantage to be gained from ensuring that gains are made by the lower-rate taxpayer.
There can be worthwhile advantage to be gained from ensuring that gains are made by the lower-rate taxpayer
Remember, as mentioned earlier, transfers between spouses/civil partners living together are on a no-gain/no-loss basis.
Simply put, chargeable gains accrue on the disposal of assets. Assets include all forms of property wherever they are situated, including (but this list is not exhaustive)
- shares and securities
- interests in land
- options, debts and rights over property
- any currency other than sterling
- any property which was created by the person disposing of it such as business or professional goodwill, copyright or a lease (by the granting of it)
- intangible assets
Some assets are specifically exempt from CGT by legislation (in some instances, simply because a disposal is more likely to produce a loss than a gain)
- private motor vehicles
- an individual’s only or main residence (having gardens or grounds of half a hectare or less) which has been occupied as such throughout the period of ownership
- tangible moveable property, that is chattels such as house-hold goods and personal effects, worth less than £6,000
- chattels with a predictable life of 50 years or less (unless used for the purposes of a trade, profession or vocation)
- SAYE (Save as you earn) contracts, National Savings certificates, premium bonds, British government securities, qualifying corporate bonds
- investments in Individual Savings Accounts
- the receipt of winnings from betting, including pool betting, or lotteries or games with prizes debts
- foreign currency acquired for personal expenditure outside the UK
- life insurance and annuity policies unless the policy has been acquired for actual consideration during its currency
- non-life insurance policies, although if the proceeds are to compensate for loss, destruction or damage of an asset, that asset may be treated as disposed of and chargeable to CGT
- disposal of an interest in a settlement, except where that interest was acquired for money or money’s worth
- damages and compen- sation for any wrong or injury suffered to his person
- disposal by a company of a “substantial” shareholding in another company
- cashbacks received by a consumer as an induce- ment to purchase goods
Before closing for this week, it is worth looking at how cashback mortgage schemes are taxed.
Some banks, building societies and other financial institutions offer cashback schemes as inducements to attract potential customers to the society or institution.
These typically involve the financial institution offering a prospective borrower the inducement of a cash payment (the cashback) to borrow money in the form of a mortgage, with the cash being payable to the borrower when the mortgage is taken out.
The way that these schemes are usually arranged means that both parties have fully carried out their rights and obligations and neither party’s contractual rights have been frustrated.
In such cases, therefore, the cashback is not a capital sum derived from an asset and so not chargeable to CGT.
The same applies if the incentives are goods rather than cash.