Whose Gain Is It Anyway?

Time after time, the Smart Frog is asked for advice on ways to reduce clients' capital gains tax libilities. He is often asked "could I simply transfer half the asset to my spouse in order to use up his (or her) CGT exemption?". The simple answer is usually "yes" but, surprise, surprise, it's a bit more complicated than that.

'Ownership' for CGT purposes is not based on 'legal' ownership, but on a concept known as 'beneficial' ownership. So, it is not necessarily in whose name an asset is legally held which determines who owns it, and thus who is taxed on it, for CGT purposes.

HMRC consider the following factors when determining who is the beneficial owner of a property:-

1. Who occupies the property?
2. Who receives any rental income?
3. Who provided the funds to purchase the property?
4. Who receives the sale proceeds on disposal?

Numbers 1, 2 and 4 might be easy to set up prior to a sale (but as far in advance of sale would be recommended). However, number 3 might not be so easy to plan for, dare we say even impossible, given that it is something which has already happened in the past.

The message? To take advice BEFORE taking action because in some cases it might be too late to undo what has already happened. Of course, this applies not only in the above example but across the whole of the tax spectrum.

You have been warned.....