- Introduction to Capital Gains Tax
- Is your asset liable to Capital Gains Tax?
- Gifts, inheritance, divorce - is Capital Gains Tax due?
Gifts, inheritance, divorce - is Capital Gains Tax due?
Some events lead to Capital Gains Tax when you don't expect it - such as when you give something away, sell a valuable item or transfer assets in a divorce. When you inherit an asset, it’s only liable if you later sell or dispose of it and make a gain.
On this page:
- Gifts and Capital Gains Tax
- Death, inheritance and Capital Gains Tax
- Separation, divorce and Capital Gains Tax
- More useful links
Gifts and Capital Gains Tax
If you sell, give away, exchange or otherwise dispose of an asset and make a profit or gain, you may have to pay Capital Gains Tax.
This means you may have to pay Capital Gains Tax when you give an asset as a gift to someone.
The rules are different depending on who you give the gift to.
Gifts to your husband, wife or civil partner
You don’t pay Capital Gains Tax when you give a gift to your husband, wife or civil partner - as long as both of the following apply:
- you've lived together for at least part of the tax year in which you made the gift
- the gift isn't ‘trading stock’ (trading goods bought for resale)
However, if your husband, wife or civil partner later sells or disposes of the asset, they’ll have to pay the tax on any gain made over the total period of ownership (yours and theirs). But they’ll only need to work out the gain since 31 March 1982 as there's now no Capital Gains Tax due on gains arising before that date.
It's useful to keep a note of what the asset cost you, as your spouse or civil partner may need this to work out their Capital Gains Tax when they dispose of the asset.
Example
Mr B lives with his wife and gives her an antique table that he bought for £12,000 in 2000.
Mrs B spends £500 restoring the table, eventually selling it for £20,000.
Her total costs are £12,500 (£500 plus Mr B's original cost £12,000).
Mrs B's gain is £7,500 (£20,000 less £12,500).
More on how to work out your Capital Gains Tax
Gifts to other family members and 'connected people'
When you make a gift to a family member or other person you're connected with - other than your spouse or civil partner - you'll need to work out the gain or loss.
This also applies if you dispose of an asset to them in any other way - eg you sell it to them for a low price.
A ‘connected person’ in this context is someone such as your brother, sister, child, parent, grandparent, mother-in-law or business partner (see the glossary link below).
You must get a valuation of the asset at the time you made the gift and use this value in place of any amount you received for the asset (usually nothing, if it’s a gift) to work out your gain or loss.
If you make a loss you can only deduct the loss from gains you make on gifts or other disposals to the same person.
Read more about ‘connected people’ in the Capital Gains Tax glossary
How to work out your Capital Gains Tax
Gifts to charity
You won’t have to pay Capital Gains Tax on a gift of shares to a registered UK charity.
Find out about tax and making gifts to charity
Death, inheritance and Capital Gains Tax
What happens when someone dies
When someone dies, the assets they own pass to the person looking after the estate - known as the ‘executor' or ‘personal representative’. There's no Capital Gains Tax to pay at that time, even though the assets have changed hands.
What the executors or personal representatives do
The executors or personal representatives are responsible for dealing with any Capital Gains Tax due to the date of death on assets that the deceased sold or disposed of before they died.
After they’ve dealt with all the tax and financial matters of the estate, the personal representatives pass the remaining assets to the people who inherit them - the ‘beneficiaries’. There's no Capital Gains Tax even though the assets have changed hands.
If the personal representatives sell or dispose of the assets and pass on the money (or 'proceeds') instead, they'll need to work out the gain or loss on the disposal of the assets.
If you're acting as a personal representative for the estate of someone who's died, you may find the links below useful.
Find out about tax returns for personal representatives
Tax at the time you inherit
When you inherit an asset from someone who’s died, there’s no Capital Gains Tax to pay at that time.
You won’t have to pay any Inheritance Tax either if the whole of their estate is worth less than the Inheritance Tax threshold (£312,000 in 2008-09 and £325,000 in 2009-10).
If the estate is worth more than the Inheritance Tax threshold and you’re entitled to receive a share of the estate, the personal representatives will usually pay any Inheritance Tax due from the estate’s assets before you receive your share.
Selling or disposing of assets you've inherited
When you sell or dispose of an inherited asset, you may be liable to Capital Gains Tax on any profit or gain you make.
You'll need to get a valuation of the asset at the date of death and use this value as the 'cost' of your asset to work out your gain or loss. If the value has been agreed for Inheritance Tax purposes you should use the same valuation.
Find out more about Inheritance Tax
How to work out your Capital Gains Tax
Separation, divorce and Capital Gains Tax
Sometimes when you separate, divorce or dissolve a civil partnership, you need to transfer assets between partners.
There may be Capital Gains Tax to pay. It depends on whether the transfer took place:
- in the tax year of separation
- in the tax year after you separated
- after you’ve divorced or your civil partnership has dissolved
Transfers in the tax year of separation
If you transfer an asset to your husband, wife or civil partner in the year of separation, the same rules apply as for 'Gifts to your husband, wife or civil partner' (see above).
You don't pay Capital Gains Tax if both of the following apply:
- you've lived together for at least part of that tax year
- the gift isn't ‘trading stock’ (trading goods bought for resale)
Transfers in the tax year after you’ve separated
If you transfer an asset to your husband, wife or civil partner in the tax year after you’ve separated, you'll have to work out the capital gain or loss if all of the following apply:
- you transfer any asset other than your main residence
- you've been permanently separated for the whole of the tax year
- you're not divorced or your civil partnership hasn’t been dissolved
You'll need to get a valuation of the asset on the date of the transfer. You use this value as the 'proceeds' (the amount received) for your asset to work out your gain or loss.
If you transfer your main residence to your spouse or civil partner, the gain is covered by Private Residence Relief and there's no Capital Gains Tax to pay as long as it's been your only or main residence throughout the period that you owned it (not counting the final three years of your period of ownership). This final three year period always qualifies for relief regardless of whether you were resident during this time or not.
Find out more about tax reliefs on your own home
Transfers after you’ve divorced or your civil partnership has dissolved
The rules for the transfer of assets after a divorce or the ‘dissolution’ (the formal end) of a civil partnership are complex. You'll need to seek further advice to make sure you get your Capital Gains Tax right.
You need the following details before you contact your Tax Office or professional adviser:
- the date of the ‘decree absolute’ or dissolution
- the date of the court order (if an asset was transferred under a court order)
- the date of any other contract showing when assets have been transferred
If you transfer your main residence to your spouse or civil partner, the gain is covered by Private Residence Relief and there's no Capital Gains Tax to pay as long as it's been your only or main residence throughout the period that you owned it (not counting the final three years of your period of ownership). This final three year period always qualifies for relief regardless of whether you were resident during this time or not.
Find out more about tax reliefs on your own home
