If you’re a business owner in the UK, you may be wanting to transfer shares to your spouse.
Our article provides a brief overview on the tax implications of gifting shares, so you can decide whether it benefits you.
We will cover:
- The tax implications of gifting shares to your spouse/civil partner
- The benefits, reasons and risks of doing so
To start with, let’s look at the benefits of transferring shares to your spouse:
- you don’t pay CGT
- your spouse will be entitled to any dividend paid on the shares
- you might be able to utilise any part of your spouse’s basic rate Income Tax that’s not already used up, making the dividends tax-free for a basic rate taxpayer
Alongside these benefits, you might be wondering the common reasons behind gifting shares:
- reduce the amount of tax you pay
- support your spouse financially
- give your spouse a share in the company
Of course, just like any financial decision, this might entail a few risks, such as…
- if you wait too long, there could be an IHT problem, because there’s a seven-year-clock and you could end up paying IHT
- if you get divorced or separated, if you transfer the shares in the year following your separation, you will need to pay CGT
Gifting shares to family
In general, what are the tax implications on gifting shares to your family?
As outlined in this article, HMRC exempts you from Capital Gains Tax when you gift shares to your spouse.
This is not the same for children, however.
You are only exempt if you are gifting the shares to your spouse, civil partner or a charity.
Therefore, you are able to gift between spouses without any tax implications.
However, if your wife sells the shares, she will need to pay Capital Gains Tax, which is calculated by comparing the current value of the shares to their initial purchase price.
If there’s a profit, your wife has an allowance of £12,300 for the 2022/23 tax year, which is tax-free.
But make sure she hasn’t already used up this allowance elsewhere.
If she owes capital gains tax, she must declare it on her self-assessment tax return and pay 10% or 20% tax on it, depending on her income.
What are the exceptions when you transfer shares to spouse?
You don’t pay Capital Gains Tax on assets you give or sell to your husband, wife or civil partner, unless:
- you separated and didn’t live together at all in that tax year
- you gave them goods for their business to sell on
- if they later sell the asset
Their gain will be calculated on the difference in value between when you first owned the asset and when they disposed of it.
You should keep a record of what you paid for the asset.
Tax consequences of transferring shares
The taxation, if any, depends on whom you are gifting your shares to.
Here’s a brief guide for your information:
Capital Gains Tax (CGT)
As outlined above, you don’t pay CGT when you make a gift to your husband, wife or civil partner.
If your spouse sells or gets rid of the asset you gave them, they’ll have to pay tax on any increase in value since you first acquired it.
This means that the tax will be calculated based on how long you’ve owned the asset, as if your spouse had owned it for that entire period of time.
Keep records of what the asset cost you, as your spouse or civil partner may need this to work out their CGT when they dispose of the asset.
As we have already discussed, if you are gifting shares to someone other than your spouse or charity, it means either you are selling or transferring them.
In such cases, you are required to pay CGT.
Here’s an example of why that’s the case, with property instead of shares:
Katie: giving an asset to her husband who later sold it
Katie bought a cottage in 1996 for £50,000. In August 2004 when the cottage was worth £90,000 she gave it to her husband, John. In June 2022 John sold the cottage for £140,000.
John made a profit of £90,000 on the sale of the cottage, calculated as the difference between the selling price of £140,000 and the original cost of £50,000. It won’t be calculated based on the value of the cottage when Katie gave it to John.
If you transfer or gift shares to your spouse, it is considered a gift for Inheritance Tax purposes.
If you die within seven years of transferring the shares, your spouse will be responsible for paying any Inheritance Tax owed.
The amount of tax owed will be based on a sliding scale called Taper Relief, which depends on how long ago the gift was made.
The tax rates range from 40% for gifts made less than three years before death to 8% for gifts made six to seven years before death.
This type of gift is called a Potentially Exempt Transfer (PET) and follows standard Inheritance Tax rules.
We hope this article helped you understand more about the tax implications of transferring shares between spouses.
If you believe you would benefit from this strategy, make sure to seek professional advice to make sure you don’t fall foul of any tax traps.
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