Capital Gains Tax for Spouses and Civil Partners

Introduction

If you're married or in a civil partnership, you can transfer assets to your spouse or civil partner without triggering a Capital Gains Tax (CGT) bill. This special rule opens up valuable planning opportunities to use both partners' annual exemptions and lower tax rates, but the treatment changes significantly when relationships break down.

No Gain/No Loss Transfers Between Spouses and Civil Partners

When you transfer an asset to your spouse or civil partner, the transfer is treated as being made at 'no gain/no loss'. This means no Capital Gains Tax is due at the point of transfer, even if the asset has increased in value since you acquired it.

Your spouse or civil partner is treated as having acquired the asset at the same base cost (the original purchase price or value) that you paid. When they eventually sell the asset to a third party, they'll calculate the gain using your original acquisition cost, not the value when you transferred it to them.

This rule only applies whilst you're living together. For CGT purposes, 'living together' means you're not separated under a court order, a deed of separation, or in circumstances where the separation is likely to be permanent.

Optimising Your CGT Allowances

Each person has their own annual CGT exemption (known as the Annual Exempt Amount). For the 2025/26 tax year, this is the amount of gains you can make before paying any CGT.

Because spouses and civil partners can transfer assets between themselves without triggering a tax charge, you can plan ahead before selling valuable assets to third parties. If one partner has already used their annual exemption, transferring the asset to the other partner first means you can utilise their unused allowance when the asset is sold.

Similarly, if one partner is a basic-rate taxpayer and the other pays tax at higher rates, transferring assets to the basic-rate taxpayer before sale can reduce the overall CGT bill, as they'll pay CGT at lower rates.

Separation, Divorce and Dissolution

The no gain/no loss treatment continues to apply during the tax year in which you separate, provided you were living together for at least part of that tax year. This gives separating couples a window to transfer assets as part of their financial settlement without immediate tax consequences.

After the end of the tax year of separation, transfers between spouses or civil partners are treated like transfers between unconnected parties. This means CGT may be due on any gain at the point of transfer, based on the market value of the asset at that time.

However, there's an important extension to this rule: if assets are transferred as part of a formal financial settlement on divorce or dissolution, the no gain/no loss treatment can continue to apply. The transfer must be made:

• Under a court order
• Under a formal maintenance agreement, or
• In accordance with the terms of the divorce or dissolution settlement

This relief ensures that dividing assets during divorce or dissolution doesn't create unexpected tax bills that would reduce the value of the settlement.

Private Residence Relief

Private Residence Relief exempts gains on your main home from CGT. The rules become more complex when spouses or civil partners own multiple properties or are separating.

A married couple or civil partners can only have one main residence between them for Private Residence Relief purposes. If you own multiple properties, you can make a joint election to nominate which property should be treated as your main residence.

When you separate, each person can then have their own main residence. This matters particularly when one partner moves out of the family home but retains an ownership interest. The partner who moves out may still qualify for Private Residence Relief during certain periods, including:

• The entire period they lived in the property as their main residence
• The final nine months of ownership (this is an automatic exemption period)
• Additional periods of absence in certain circumstances

If you continue to own a share of the former family home after separation (for example, until children finish school or until a later sale), you need to consider carefully how Private Residence Relief applies to your share.

Hold-Over Relief

Hold-over Relief is a separate CGT relief that allows you to defer a gain until the recipient disposes of the asset. It applies in specific situations, such as gifts of business assets or assets transferred into certain trusts.

Spouses and civil partners don't need Hold-over Relief for straightforward transfers between themselves, because the no gain/no loss rule already prevents an immediate charge. However, Hold-over Relief can become relevant when:

• Transferring business assets to your spouse or civil partner who will use them differently in a way that might restrict no gain/no loss treatment
• Making arrangements involving trusts during divorce or dissolution settlements

Hold-over Relief must be claimed jointly by the person making the disposal and the person receiving the asset.

Practical Planning Points

These special rules create several planning opportunities:

Before selling investment property or shares: Consider whether transferring part or all of the asset to your spouse or civil partner would make better use of annual exemptions or lower tax rates.

During separation: Make use of the no gain/no loss rules during the tax year of separation to reorganise asset ownership without triggering CGT.

When divorcing: Ensure any asset transfers form part of your formal financial settlement to maintain no gain/no loss treatment beyond the tax year of separation.

With multiple properties: Make a timely decision about which property to nominate as your main residence, and review this if circumstances change.

The interaction between relationship status and CGT can significantly affect your overall tax position. Planning ahead, particularly before finalising separation arrangements, can preserve substantial value that might otherwise be lost to unnecessary tax charges.

Sources

• Capital Gains Tax, civil partners and spouses (Self Assessment helpsheet HS281)

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.