For ease of reading, all references below to spouses, also includes civil partners; because civil partners are considered the same as spouses for tax purposes.
When a cryptoasset is transferred between two spouses, there is a disposal by the transferor spouse and an acquisition by the transferee spouse for capital gains tax purposes.
The disposal is deemed to take place at ‘no-gain and no-loss’ provided the couple is:
- married or in civil partnership, and
- living together during the tax year
In Scotland, a ‘common-law’ marriage is recognised as a legal marriage once there has been a declaration before the Court of Session. Disposals between such a couple are also deemed to take place at no-gain and no-loss.
A couple does not have to be physically living in the same house to be ‘living together’. As long as the marriage or civil partnership has not broken down, the couple are treated as living together for capital gains tax purposes, even if they have separate homes.
This disposal proceeds used in the capital gains calculation is a balancing figure and it is equal to the costs of acquisition, plus enhancement expenditure, plus incidental costs of sale.
The transferee spouse’s base cost is the deemed proceeds figure used in the capital gains calculation. This is the deemed cost of acquisition for the transferee spouse.
Any actual consideration paid by the transferee is ignored and the no-gain and no-loss rules are still used. There is nothing in the legislation to disapply the no-gain and no-loss rules where the spouses are married and living together but one spouse is non-resident in the UK.
This no-gain and no-loss treatment applies until the end of the tax year in which the couple separate. Individuals who are married or in civil partnership are treated as living together unless they separate:
- under an order of a court
- by a deed of separation, or
- in circumstances where the separation is likely to be permanent
For example, if a couple permanently separate during the 2021/22 tax year, any transfers between them up until 5 April 2022 will take place at no-gain and no-loss. As the couple does not live together in 2022/23, any transfer of assets must take place at market value since they are ‘connected persons’. Any actual consideration paid is ignored. The fact that the couple may still be legally married is irrelevant.
The no-gain and no-loss rule does not apply where:
- the transfer is made on the death bed (the transferee spouse is treated as a legatee)
- the asset transferred formed part of the trading stock of the transferor spouse
- the asset transferred forms part of the transferee spouse’s trading stock
Transfers to and from trading stock are deemed to take place at market value. This would be applicable if an individual is engaging in financial trading in cryptoassets and transfers the assets into or from the trading stock of this business.
This is a complex area and we recommend you seek help from a qualified tax professional if this may be applicable to you.
The transfer of the asset between spouses has to be reported on the transferor spouse’s Tax Return if they have other chargeable gains that need reporting on the Tax Return. This is the case if net chargeable gains exceed the CGT annual exempt amount.
For someone in Self Assessment for other reasons, where the total disposal proceeds exceed four times the CGT annual exempt amount (£49,200 in 2020/21 and 2021/22), inter-spouse transfers need to be reported even when other capital gains are less than the annual exemption. A detailed CGT calculation also needs to be submitted, as with any other disposal.
However, even if no reporting is required, it is still good practice to disclose the no gain and no loss transfer on the Tax Return of both the transferor and transferee spouse as it may help avoid a later HMRC investigation.
Recap has been designed from the ground up to work out the capital gains impact of transferring cryptoassets between spouses.
Each spouse will need their own independent Recap account in order to correctly represent their portfolio and beneficial ownership of funds.
The gifting spouse:
- 1.The gifting spouse should reclassify any withdrawals made to their spouse as "Send Gift (Spouse)" transactions.
- 2.Recap treats spouse gifts as a no gain/no loss disposal
- 3.A summary of Gift Disposals is included in the PDF capital gains tax report which breaks down the gift values.
Send gift to spouse
The receiving spouse:
- The receiving spouse should reclassify any deposits made from their spouse as "Receive Gift Spouse" transactions
- Recap treats spouse gifts as an acquisition and requires the gift value of the transaction which is summarised on their spouse's PDF capital gains tax report.
Receive gift from spouse