CG17945 - Taper relief: business asset: shares-transfers between spouses or between civil partners

Different rules apply if the asset disposed of by the transferee spouse or by the transferee civil partner consists of a holding of shares. For shares in a company to qualify as a business asset it is necessary to determine whether the company was the qualifying company, see CG17948, of the transferee spouse or civil partner throughout the whole of the period of ownership falling after 5 April 1998.

If the company was not the qualifying company of the transferee spouse or civil partner throughout the whole period of ownership, the gain should be apportioned, under TCGA92/SCHA1/PARA3, so that part of it is a gain on the disposal of a business asset and the remainder is treated as a gain arising on the disposal of a non-business asset.

EXAMPLE 1 - BUSINESS ASSET FROM DATE OF TRANSFER

Mr and Mrs S are both full-time working employees of a trading company and each can exercise 3 per cent of the voting rights in the company.

On 1 January 2000 Mrs S transfers her 3 per cent interest in the company to Mr S.

Following the no gain/no loss transfer under TCGA92/S58 Mr S can exercise 6 per cent of the voting rights in the company and all of this holding will qualify as a business asset from the date of the transfer. In the period from the date of acquisition of a 3 per cent holding by each spouse to the date of transfer neither Mr nor Mrs S held more than 5 per cent of the voting rights in the company so only the non-business asset taper will be available to Mr S for this period.

EXAMPLE 2 - BUSINESS ASSET THROUGHOUT

Mr and Mrs T are both full-time working employees of a trading company where Mr T can exercise 3 per cent and Mrs T 6 per cent of the voting rights in the company.

On 1 January 2000 Mr T transfers his 3 per cent interest in the company to Mrs T.

A transfer from Mr T to Mrs T at no gain/no loss under TCGA92/S58 in this instance secures business asset status for all of the shares from the time at which Mrs T, as a full-time working employee, held more than 5 per cent of the voting rights in the company. This is because the company was already a qualifying company for Mrs T due to her existing 6 per cent holding. Therefore any disposal of shares in the company by her will be a disposal of a business asset from the time she had the necessary holding.

EXAMPLE 3 - BUSINESS ASSET FROM THE DATE OF TRANSFER

The initial holdings of Mr and Mrs T are the same as in example 2 except that it is Mrs T this time who transfers her 6 per cent interest to Mr T.

A transfer from Mrs T to Mr T at no gain/no loss under TCGA92/S58 in this instance has significant consequences in terms of any entitlement to the business asset taper. This is because when Mr T disposes of his 9 per cent holding only the period from the date of transfer by Mrs T, when he acquired greater than 5 per cent of the voting rights in the company, will qualify for the business asset taper.

The benefit of Mrs T's pre-transfer holding of greater than 5 per cent (this holding already qualified for her as a business asset without the need for the transfer) will be lost. So for the period prior to transfer Mr T will only qualify for the non-business asset taper.

EXAMPLE 4 - BUSINESS ASSET FROM 6 APRIL 2000

Mrs H has owned 3% of the ordinary shares of an unlisted trading company since 1 May 1998. Neither Mrs H nor Mr H are employees of the company. On 1 February 1999 Mrs H transfers all her shares to Mr H. The shares become business assets in relation to Mr H on 6 April 2000 (shares in an unlisted trading company) and remain business assets until their disposal on 1 September 2002. Mr H's qualifying holding period is therefore 1 May 1998 to 1 September 2002. Any gain will be apportioned for taper relief purposes in relation to the period to 5 April 2000 when they were not business assets in relation to Mr H and the period after then when they became business assets.