Cash out units and then re-buy after house sale, transfer to spouse to reduce CGT?

[Steve_Harris]

I wonder if someone can give me a steer.

Unless I can tie together selling my house with buying a new one (doubtful as I need to move on the new house quickly) then I'll have to cash out lots of units in a unit trust to buy the new house. Then, after the sale of my current house I'll buy the units back (or at least I'll invest in a similar way).

When I cash out the units then this will give rise to a hefty CGT charge. I understand that if I buy the same units back within 30 days then, in effect, I'll be treated as if I never sold the units. It will likely be 2-3 months though so this probably won't help.

My wife will have no capital gains in the tax year, and also not much income (so a chunk of gain over the allowance will be taxed at 10% I believe if she owned the units).

My question is - can I transfer some units to my wife, for a short period of ownership in effect, to take advantage of her capital gains tax allowance?

If so, then what is the process? Do I have to contact the investment manager and assign units somehow? For instance, would this work (please don't laugh at me if this is nonsense!):

A) I transfer some units to my wife (say, £200k worth);
B) she sells them and declares any capital gains on her SA return, and pays the tax after the year end;
C) she transfers the proceeds (£200k) to my bank account and I, in due course, transfer to the solicitor along with the proceeds of any units that I sell to buy the new house.

Any steer would be great, especially on the steps for (A) and any considerations that I should be aware of. The new and old house are purely in my name.

[AGoodman]

It's a grey area. A literal reading of the legislation would suggest it is fine but HMRC could in theory argue that she was only selling them on your behalf; the evidence being the fact that she was always going to transfer the proceeds back to you and the short period of time. A slightly different argument, the Ramsey principle, would get them the same result.

It's a risk but not one I can quantify for you.

The position should be fine if your wife put the proceeds towards her own interest in the new property rather than give you the cash back.

[Steve_Harris]

Thanks, that's helpful and something that I'd not considered.

Just looking at the HMRC manual there is nothing obvious that covers this - eg this has the exceptions (to there being no capital gain on transfer) https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg22210. As far as I can see, the relevant legislation (unless it was amended) is below.

Maybe there is some overriding legislation that could cover this? I'd note that there would be some delay, and the £s amount of the transfer won't be the same as the market value of the transfer (I could even get her to keep some units back etc). Seems a bit harsh for HMRC to get all funny about this given that it seems fine in the manual (to me anyway) but I get that it doesn't always work like that!


58 Husband and wife
(1) If, in any year of assessment, and in the case of a woman who in that year of assessment is a married woman living with her husband, the man disposes of an asset to the wife, or the wife disposes of an asset to the man, both shall be treated as if the asset was acquired from the one making the disposal for a consideration of such amount as would secure that on the disposal neither a gain nor a loss would accrue to the one making the disposal.

(2)This section shall not apply—

(a)if until the disposal the asset formed part of trading stock of a trade carried on by the one making the disposal, or if the asset is acquired as trading stock for the purposes of a trade carried on by the one acquiring the asset, or

(b)if the disposal is by way of donatio mortis causa,but this section shall have effect notwithstanding the provisions of section 18 or 161, or of any other provisions of this Act fixing the amount of the consideration deemed to be given on a disposal or acquisition.

[AGoodman]

Yes, that is the legislation and the likely outcome.

HMRC will probably not look into it, and even if they did might not argue over relatively small sums (relative to the sorts of cases that end up in court), but my point was that HMRC does have arguments if it wants to take issue. They probably wouldn't.

[Steve_Harris]

Thanks - I guess it's hard to be certain but having read the manual I feel fairly confident. If nothing else I don't think anyone could be criticised as it all seems fine in the manual and regs.

But, if it does happen I'll make sure that the number of units isn't exact and not everything is transferred (and also that there is a little bit of a delay)