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Gifts, inheritance, divorce - is Capital Gains Tax due?

Some changes in your circumstances may make you liable to pay Capital Gains Tax when you don't expect it. Capital Gains Tax may be due when you give something away, sell a valuable item or transfer assets in a divorce. When you inherit an asset, there will only be Capital Gains Tax to pay if you later sell or dispose of it and make a gain.

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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.

So 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 won't have to 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. Tax will be due 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. 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. 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 2003.

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

Capital Gains Tax on personal possessions: the basics

Gifts to other family members and 'connected people'

When you make a gift to a family member or other person you're connected with, you'll need to work out the gain or loss. This doesn't apply to gifts you make to your spouse or civil partner.

This also applies if you dispose of an asset to them in any other way - for example, 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. Follow the link below for more information about connected people and Capital Gains Tax.

You must get a valuation of the asset at the time you made the gift. Use this value in place of any amount you received for the asset to work out your gain or loss. If you gave the asset away, then of course the amount you received for it will be nothing.

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 may not have to pay Capital Gains Tax on gifts of assets to a registered UK charity.

Find out about tax and making gifts to charity

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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. This person is 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. Capital Gains Tax may be due on assets that the person 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 'beneficiaries'. Beneficiaries are people who inherit assets. There's no Capital Gains Tax even though the assets have changed hands.

The personal representatives may 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

Download the latest Capital Gains Tax helpsheet for personal representatives - Helpsheet 282 (PDF 95K)

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.

There won't be any Inheritance Tax due either if the whole of their estate is worth less than the Inheritance Tax threshold (£325,000 in 2013-14).

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. 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

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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. See the section above 'Gifts to your husband, wife or civil partner'.

You won't have to 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

Special rules apply 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. There's no Capital Gains Tax to pay as long as it has been your only or main residence throughout the time that you owned it. The final 3 years always qualify for relief even if you weren't living there.  But to get this relief a property must have been your main home at some point during the time that you owned it.

In his autumn 2013 statement the Chancellor announced that from 2014-15 this final period relief will only apply to the final 18 months of ownership. There will be an exception for people who are disabled or in long-term care.  This measure is set to become law later in 2014.

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 HM Revenue and Customs (HMRC) 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. There's no Capital Gains Tax to pay as long as it's been your only or main residence throughout the time that you owned it. The final 3 years always qualify for relief even if you weren't living there, as long as it has been your main home at some point during the time that you owned it.

In his autumn 2013 statement the Chancellor announced that from 2014-15 this final period relief will only apply to the final 18 months of ownership. There will be an exception for people who are disabled or in long-term care.  This measure is set to become law later in 2014.

Find out more about tax reliefs on your own home

Telephone or write to HMRC

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More useful links

Working out your capital gain or loss - the basics

How to report a capital gain

What to do if you've made a loss