Theresa Mills
Solicitor
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Date Published:18 Feb 2021 Last Updated:18 Jun 2021

Cohabitation and Capital Gains Tax (CGT)

Wills, Trusts & Probate

Committed cohabiting relationships outside of marriage or civil partnership are commonplace in today’s society but cohabitees, however long their relationship, are not able to benefit from statutory provisions which benefit a spouse.

Today I am looking at the example whereby spouses can transfer assets to one another without triggering a Capital Gains Tax disposal.  This can be very useful not only to utilise 2 annual exemptions but also to pass assets between themselves for wider tax planning. Cohabitees cannot do so and could be unwittingly caught by CGT disposals at deemed market value and disputes if relationships breakdown acrimoniously.

Informal arrangements on the transfer of an interest in property from one cohabitee to another could be interpreted as a gift or settlement, as trusts can be set up informally.  Without a record of the parties intentions, they could face a disagreement with HMRC, as the tax payable in the circumstances could be very different.

Prior to entering into a joint purchase as a cohabitee consider documenting your agreement with a Declaration of Trust or Cohabitation Agreement.

Parties considering disposing of an asset which may be subject to CGT should remember to take advice before doing so.  This is especially important now because disposals of interests in UK residential property where there is a capital gain need to be reported to HMRC within 30 days and tax paid in this period.  For non-residents a return is required even where there is no tax to pay.

For more information please contact Theresa Mills in the first instance, on 01202 057743 or by email at theresa.mills@ellisjones.co.uk.