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HMRC internal manual

Capital Gains Manual

Transfer of assets: between husband and wife or between civil partners: avoidance: NR spouse or NR civil partner

CG22070 explains that a husband and wife or civil partners of each other are `living together’ and so can transfer assets between themselves at no gain/no loss if they do not fall within any of the exceptions set out in ICTA88/S282.

Before the introduction of independent taxation, for years up to 1989-90, ICTA70/S42 (2) and then ICTA88/S282 (2) stated that a husband and wife were to be treated as separated if one of them was resident in the United Kingdom and one was non-resident or absent throughout a year of assessment. But there was a proviso, at Section 42(3) and then at Section 282(3), that the tax payable by the husband and wife taken together for any such year would not be greater than it would have been if it were not for that subsection.

Gubay v Kington 57TC601

The implications of this legislation were considered in the case of Gubay v Kington (57TC601). The House of Lords decided that the proviso at Section 282(3) applied for Capital Gains Tax purposes. Thus an asset could be transferred from a UK resident spouse to a spouse who was not resident in the UK at no gain/no loss and sold by the non-resident spouse without attracting UK Capital Gains Tax liability. Thus assets could be passed outside the UK tax net.

Changes to ICTA88/S282 following Independent Taxation

FA88/SCH3, which introduced Independent Taxation, amended what is now ICTA88/S282 to repeal both Section 282(2) and (3). So, for 1990-91 and subsequent years of assessment a husband and wife can only be treated as not living together if Section 282, as amended, applies. Civil partners of each other can also only be treated as not living together if Section 282, as amended, applies. The amended section applies in the circumstances set out at CG22073.

There is no longer any authority to treat a non-resident spouse as separated from a resident spouse merely because of their residence status. Similarly a non-resident civil partner may not be treated as separated from a resident civil partner merely because of their residence status. So the possibility of passing assets outside the UK tax net remains.