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HMRC internal manual

Capital Gains Manual

Transfer of assets: husband and wife: before independent taxation

CGTA79/S45 (1)
CGTA79/S45 (2)


Finance Act 1988 introduced radical changes to the taxation of husbands and wives including, in particular, the separate taxation of their income and chargeable gains. The new regime is known as Independent Taxation and applies for 1990-91 and subsequent years. More information is set out in the Independent Taxation Handbook (IN).

A summary of the rules which applied for years up to 1989-90 is set out below.

CGTA79/S45 (1)

Primarily the gains of each of the spouses were added together and assessed on the husband.

The only exception was that in the year of marriage or of any reconciliation (unless the marriage or reconciliation took place on 6 April) all the chargeable gains arising to the woman in that year were to be assessed on her.

CGTA79/S45 (2)

If, before 6 July in the year following the year of assessment, a husband or wife applied on form CG11S for separate assessment, the chargeable gains of each spouse were to be dealt with for Capital Gains Tax purposes as if the person concerned was not married.

Such an application applied not only for the year of assessment to which it related but also for all subsequent years until notice of withdrawal was given. The notice of withdrawal had to be made before 6 July in the year following the year of assessment to which the withdrawal first applied.

The primary responsibility for paying any tax assessed on the husband lay with the husband even if the gains had accrued to his wife. The Board of Inland Revenue had certain rights of collection from the wife if the tax remained unpaid.

The aggregated gains of the couple were taken in considering

  • relief for small disposals 1970-71 to 1976-77
  • relief for disposals of less than £9500 in 1977-78 and 1979-80.

The gains of the couple in each year of assessment were added together to consider the rate of tax chargeable on those gains in 1988-89 and 1989-90.

For the years 1980-81 to 1989-90 the couple shared a single annual exempt amount.

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Special rules applied regarding the set off of losses of one spouse against gains accruing to the other spouse.

In summary these were

  • the net chargeable gains accruing to one spouse for a year of assessment were to be reduced as far as possible by any net loss accruing to the other spouse in the same year;
  • losses brought forward were to be taken into account except to the extent that they would reduce the taxable amount below the amount of the main exemption;
  • a husband or wife could apply, before 6 July in the year following the year of assessment, to carry forward the net loss of each spouse accruing in that year for set off against his or her future gains instead of being set off against the other’s net gains accruing in the year. A fresh application was needed for the losses of each year;
  • the time limit for such an election was extended in the case of Lloyd’s Underwriters.