Transfer between spouses to avoid CGT

[Glazer FC]

According to the revenue & Oasis.gov.ie there is no Capital Aquisitions Tax (gift tax), or Stamp Duty, on transfers of property between spouses. If this is the case, should we transfer the ownership of our investment property into one name, and then, prior to selling, transfer/gift the property to the other spouse. The receiving spouse gets the property at current market value, free of any tax. The CGT would then be minimized to the difference between current market value and the sale proceeds. Surely this type of tax 'avoidance' is too easy... What am I missing?

 

[ClubMan]

What am I missing?

The fact that the original acquisition price carries over to the receiving spouse - i.e. the market value at the time of transfer does not become the effective acquisition price. See here and here for some related reading. This strategy is useful for availing of the other spouse's annual CGT allowance and any previously incurred capital losses though and is perfectly legitimate. With property as opposed to shares there may be additional legal/conveyancing costs though.

 

[Glazer FC]

Thanks Clubman - I knew it seemed too good to be true! I presume that I can still 'bed & breakfast' my shares, to use this year's allowance, and then t/f to wife and use her allowance for this year too... or have the revenue closed that one off too?

 

[ClubMan]

I presume that I can still 'bed & breakfast' my shares, to use this year's allowance

Yes.

and then t/f to wife and use her allowance for this year too...

You mean for another B&B once she holds them? Will the shares have risen in value sufficiently to make this worth doing? Or do you mean on disposal in which case yes. If you are planning on disposing of most or all shares held by you and (soon) your wife this year then there's hardly any point in doing any B&B is there?

The way I did it before (FA shares just before the UB takeover) I transferred sufficient shares to my wife's name so that after her annual CGT allowance and previously incurred capital losses (eircom) had been factored in the sale of her shares would be (CGT) tax free thereby reducing our overall CGT liability if the shares had all remained in my name.

 

[Glazer FC]

There's no need for the shares to rise in value, as it will be a different ;ot of shares that the wife will be B&B'ing - I would B&B some of my shares (up to annual exemption limit), and transfer different shares to the wife, so that she could B&B shares up to her annual limit - i.e. B&B two different lots of shares. Am I thinking straight on this?

 

[ClubMan]

There's no need for the shares to rise in value, as it will be a different ;ot of shares that the wife will be B&B'ing

Not necessarily. You can't decide this yourself as it all depends on Revenue's [broken link removed]. I'm not sure if B&B transactions are considered to move the affected shares from first to last spot in your list of shares. If not then any shares that you B&B and thus "reprice" with a new effective acquisition cost will be the ones that are subsequently transferred to your spouse (along with their new higher price) this militating against what you are trying to achieve. From other stuff that I've read (including [broken link removed]) I suspect that for B&B transactions a LIFO rule instead of the normal FIFO rule applies in which case this has no impact on the transfer to your spouse.

Probably best to get independent, professional advice on the tax issues involved. Don't forget that transactions that give rise to no CGT liabilities must still be reported to Revenue under CGT self assessment.

P.S. I presume that the FIFO or LIFO rules as they apply to B&B transactions mean that somebody doing B&B transactions each year to reprice shares and avail of their annual CGT allowance will be applying such transactions to the same batch of shares (along with others in most cases) year on year? For example - I have 5000 shares acquired for €0 and now worth €1 each. Let's assume that the share price is static over the next few years. This year I B&B 1270 of them. Next year I must B&B the original 1270 plus another 1270 in order to avail of my CGT allowance and reprice the second 1270. And so on? Is this correct?