Property transfers between spouses or civil partners

When transferring property between spouses, the first tax thought that springs to mind is capital gains tax (CGT), but stamp duty land tax (SDLT) is another important consideration. This article looks at the implications for both taxes when transferring property between spouses or civil partners.

The income tax implications of jointly-held property will be covered in a future article.

Capital gains tax (CGT)

You do not usually pay CGT on any properties that are transferred over to a spouse/civil partner (there is an exception if you gave them goods for their business to sell on).

The spouse who then receives the property, inherits the original base cost of the spouse that transferred the property over. This will have an impact on determining the level of CGT due on any later disposal. The gain will be calculated on the difference in value between the sale date of the property and what the spouse who made the transfer actually paid for the property.

For couples that have separated the rules have changed recently. It used to be the case that for any transfer to be made free from CGT, it would need to be done before the end of the tax year (5 April) of separation. Transfers made after this date would be deemed to take place at market value.

From April 2023, the time limit to benefit from the inter-spousal tax-free transfer has been extended to the earlier of:

• Three years from the end of the tax year of separation.
• The date of divorce.

For couples that are not married in a civil partnership they will not be able to benefit from the above exemption. Instead, the transfer is deemed to take place at market value/arm’s length value.

Stamp duty land tax (SDLT)

Inter spousal transfers are not always free from SDLT if consideration has been deemed to be transferred. Consideration for these purposes can take the form of cash or the transfer of a mortgage, as a liability is being transferred from one spouse to the other.

So, whilst an interspousal transfer of property may be free from CGT, care needs to be taken to ensure a couple do not unintentionally create a SDLT liability.

For more information on property transfers, please call 023 8046 1237, or email Joe Wilson.