US dollar gift from to UK domiciled husband to wife

[Enquirygirl]

My husband holds an amount of US dollars in an international bank account in the U.S.. Originally, many years ago, he had been gifted some shares in a private US owned company, by his former boss. He paid tax on the original value of the shares, when they were given. When the company was sold, the shares had to be liquidated.

He has transferred about 3/4 of the funds into sterling over recent years, using capital gains allowances (for him and myself) for the values that the shares had increased by. He was looking to wait for further years capital gains allowances to bring in the remainder.

However I recently came across some information that suggested that he could gift the remaining dollars to me, without tax implications under Income Tax 2005 Act Sections 624 – 627. It appears there would be no tax payable either as spouses living together (section 626) or even if we separate as part of the dissolution (627). Have I understood the law correctly?

[maths]

CGT is not charged on a conversion of $ into £ and has not been so charged since April 2012 if this is your question.Got a bit confused by it.

[AGoodman]

I don't really understand this: " using capital gains allowances (for him and myself) for the values that the shares had increased by"

If your husband is UK domiciled then he would have realised a taxable gain when he disposed of the shares, not when the cash was later converted into sterling.

There could be further gains on the conversion if USD has risen against sterling.

If you are just talking about currency gains because sterling has dropped, he can transfer the USD to you on a no gain/no loss basis but you would receive them with his acquisition value. This can be useful as it allows you to use your annual allowance and possibly lower marginal rate of tax (i.e. if you are basic rate, he is higher rate).

[AGoodman]

Maths - forgive me, I learnt about three Forex regimes at the same time so get confused.

Are you sure that an exchange from USD to GBP would be exempt? I know the 2012 changes exempted bank withdrawals but didn't realise they covered actual conversion.

(Also, to answer the original question - no, the 2005 is not in point here. It is possible that UK IT could have been an issue when the shares were sold if your husband was UK resident at the time, but not now. The relevant provision is s.58 TCGA 1992 - dealing with capital gains tax.

[maths]

AG

I should have been a little more expansive in my response. You are correct.

A disposal of a foreign currency bank account (eg a withdrawal or transfer to another account) no longer constitutes a chargeable disposal for CGT; post April 2012.

However, foreign currency itself still constitutes a chargeable asset and hence any conversion into £ may give rise to a CGT charge. The only exception is the so-called "personal expenditure" let-out which would not appear here.

[Enquirygirl]

Thank you so much for your time guys... so a few questions, to check I understand;

- Should gains on the private shares been declared/taxed when the shares were (forceably) sold? We had previously paid the tax on the original value, when they were gifted.
- Could the amount of gains have been/be transferred to me, so that I can at least use my personal allowance? (I've not been able to work for a few years due to illness, so have not used my PA.) If I can do this, how do I declare this? Guessing through self assessment? Will the tax office allow me to use my PA for this, as I'm not working, and do I complete as income on the forms, to make use of the PA, or something else?
- Should any tax chargeable also include gains in value on the interest rate, if applicable?

Thank you again for your time....

[AGoodman]

I'm afraid the position on the original sale will depend on the exact nature of the share "gift". The default UK position (which may well be the correct one) is that income tax was likely payable when he received the shares (because they were employment related) [sounds as though you may have paid this] and then he would have made a capital gain subject to UK CGT if they had increased in value when he sold them (forced or otherwise).

It gets more complicated if there were other reasons for him receiving the shares or if there was any kind of option arrangement - there are various schemes, all with different tax treatment.

There is no way those liabilities can be transferred to you. It would have required him to transfer the shares to you before they were "sold".

If he received USD and they have increased in value vs sterling (because the pound has tanked) he will make a taxable currency gain on that increase when they are converted to sterling. He could transfer that liability to you if he transfers you the dollars and you made the exchange. It might have to be substantial sums to make it worthwhile.

[Enquirygirl]

Ok, that's taken me a while to go through - but we've revisited the information we were previously given (obviously not correct!), and the transaction that took place (within the US, to a US dollar bank account) at the time the shares were sold. The payment for the shares was made out to both of us - i.e. in joint names - and also received into a joint US bank account.

Now this is where it gets a little more complicated; Originally, when the 1st/2nd/3rd/4th lot of shares were given (over a four year period 2009 - 2012 - and not able to be redeemed until 2015 - 2016 respectively), they were gifted to us by the overall owner, in another of his businesses, which was legally the Parent company. So I'm not sure how this is regarded? Then some years later, a scheme was set up by my husband's direct employer where senior staff members were asked to buy some shares (in that same parent/third party company), and the company would then provide some free shares in return, which could not be redeemed for several years. This scheme ended abruptly, when an offer was made to buy the company, and all shares were forceably sold.

We chose to sell some shares in an earlier tax year and declared this for capital gains tax. But the company was then sold in the 2017/18 year, so thankfully we've not had to submit our self assessments for that tax year yet. It seems from what you've written there is no point keeping the dollars in the US now, so guessing we should just exchange those into sterling... How do we best declare the income, so we pay whatever tax is needed - without overpaying? For example, if we split the value 50/50, does that mean my husband, a high rate tax payer will pay 20% on his half of the gains - or can he claim Entrepeneurs Relief at 10%? And will I (not working) pay 10% - of the gains? Can I also use my personal allowance? Can he use the SIPS scheme allowances for the GBP 3600 free shares allowed for each relevant year (all since April 2014), those that he bought (under the partnership scheme) along with the allowance for matching shares? Any thing else I'm missing?

[AGoodman]

It sounds like you need to see an accountant.

H appears to have had options (simple shares would vest immediately) and two different schemes so there are a variety of ways it could be charged.
I don't understand why the payments were made to you - if just for convenience then it wouldn't make any difference in the UK.
Entrepreneurs relief is only available if H owned 5% of the company.

It's all too complicated and fact specific to give advice on here

[Enquirygirl]

Sure, ok, thank you for all your help so far.... yes, we'll have to consider an accountant then... thank you.