• ICE Chartered Accountants

Inter-spouse transfers

Generally, it’s true to say that the tax legislation seems to want to make it easy for spouses (and civil partners) to transfer assets (including properties) to each other.

Property transfers and tax

For example, such transfers are treated as ‘no gain/no loss’ disposals for capital gains tax (CGT) purposes. They are also exempt from inheritance tax (IHT), meaning that no tax is chargeable either on death or when an asset is transferred between spouses – even if the transferor then fails to survive for seven years.

A rare example of the lack of interchangeability between spouses is the rule for stamp duty land tax (SDLT) purposes where any actual consideration given (i.e. including taking over liability on a loan secured on the property) is fully subject to SDLT.

However, generally speaking tax is not going to be a barrier to such transfers: and, indeed, saving tax, particularly income tax, can be a major incentive. Let’s look at a simple example.

Example 1: Higher or lower?

George is a high-flying executive on a salary of £250,000 per annum. He also receives rent on an investment property, that used to be his own residence, of £20,000 per annum.

Without planning, tax would be due (at current rates) at 45% on the £20,000 rental income, because this is George’s marginal rate of tax. His wife Mary, on the other hand, has no income of her own other than a small part-time salary, which exactly uses up her income tax personal allowance.

In this example, by transferring the property to his wife, George brings about the situation that the £20,000 rental income is chargeable to tax at 20% rather than his 45% rate, thus saving annual income tax of £5,000.

Are inter-spouse transfers ‘tax avoidance’?

In the case of George and Mary then, the effect of the transfer is certainly significantly to reduce the amount of tax the couple pay.

In one sense, it is difficult to escape the conclusion that a deliberate action taken with the result of saving a lot of tax should be described as tax avoidance. As a leading tax barrister once commented, though, giving up smoking is tax avoidance, and that presumably would not be frowned on by the more zealous commentators (the less tax such commentators pay themselves, a cynic would say, the more zealous they tend to be).

It’s very difficult to apply any kind of precision to discussions of this sort because of the emotion – the heat rather than light – which they generate; but one possible definition of ‘tax avoidance’ in the pejorative sense is actions taken that in some way go against ethical requirements to pay a ‘fair’ amount of tax.

However, as far as the law is concerned, the famous and much quoted dictum of Lord Clyde in the case of Ayrshire Pullman Motor Services and Ritchie v CIR ([1929] 14 TC 754) is still valid law: ‘No man in this country is under the smallest obligations, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores.’

Although this is expressed negatively, the implication is clearly that an inter-spouse transfer resulting in a lower overall tax liability for the couple is acceptable.

HMRC’s weaponry

But perhaps of more immediate relevance than a fairly high-flown philosophical discussion of the matter is the question of whether HMRC can counteract tax planning using inter-spouse transfers of properties and other assets.

In summary, HMRC have four types of legal redress, which can be used by them to counter actions put in place to reduce tax:

  • Specific anti avoidance legislation;

  • The general anti-abuse rule (GAAR);

  • The disclosure of tax avoidance schemes (DOTAS) rules; and

  • Case law principles.

Let’s have a look at these in turn, in the context of transferring properties between spouses.

Specific anti avoidance legislation

When independent taxation of husband and wife was introduced in 1990, the government accepted that asset transfers would take place, as a result of which the tax payable by the couple would be reduced. An anti-avoidance rule exists to the effect that income arising following such a transfer would continue to be taxable on the transferor spouse in certain comparatively unusual situations, of which probably the more frequently found is where the asset transferred is ‘substantially a right to income’.

So, moving away from property for a moment and considering the example of shares in a company, if a husband (say) transferred to his wife shares in a company which were only income producing and gave rise to no voting or capital rights, those shares could well be treated by HMRC as ‘substantially a right to income’.

In this event, the anti-avoidance rule rules would kick in and the income would be taxable on the husband. However, as the famous case of ‘Arctic Systems’ (Jones v Garnett (Her Majesty's Inspector of Taxes) [2007] UKHL 35) established, an ordinary transfer of assets is effective and is not caught by the anti-avoidance.


The GAAR is set up (deliberately of course) to catch a wide variety of situations; in order to make it more difficult for inventive tax planners to devise arrangements that would sidestep the GAAR rules.

However, whilst it’s no doubt dangerous to generalise, it seems that the GAAR is mainly aimed at situations where: (a) an economic profit is so arranged that it isn’t a taxable profit; or (b) relief is given against other income or gains for a loss which is not a true economic loss.

So, we can be reasonably sure that GAAR will not apply to inter-spouse transfers except when they are part of an exceptionally devious or ‘clever’ scheme.


DOTAS is sometimes a formidable weapon in HMRC’s armoury. What it requires is that schemes falling within a number of ‘hallmarks’ of avoidance should be disclosed to HMRC by the taxpayer and/or the relevant adviser within a few days of first being suggested (let alone implemented).

There isn’t space here to go into all of the hallmarks of schemes that are vulnerable to DOTAS. However, they include (for example) premium fees charged by the advisers, a requirement of confidentiality imposed by the adviser, and arrangements that are in some way ‘standardised’ or ‘packaged’. It seems to me very unlikely that your average inter-spouse transfer will come anywhere near any of these hallmarks.

Case law weaponry

If there’s nothing in the statute, HMRC can in some circumstances cite case law, in particular the case of Furniss v Dawson [1983] HL 4. To sum up the principle that this case established in one sentence, inserted steps in a series of transactions are treated for tax purposes as if they haven’t happened where the series of transactions overall is ‘preordained’ and where the inserted steps have been put in for no purpose other than tax avoidance.

In my view, this will not apply to a straightforward example such as that of George and Mary above, because there are no inserted steps; merely a transfer of an asset from one person to another which has permanent consequences. But there are situations where Furness v Dawson could be called in aid by HMRC, and I will conclude with an example of such.

Example 2: Pre-sale property transfer

Susan owns an investment property, which she is about to sell realising a substantial capital gain. Her husband Peter has capital losses but doesn’t own any share of the property. So, Susan transfers the property into her husband’s name a day before the sale, and the proceeds are therefore paid into his bank account. He then makes the proceeds over to Susan.

The aim of this is to utilise Peter’s losses; however, the transfer of the property to him seems to have no purpose other than tax avoidance, and we end up with the same position at the end of the day as would have been the case without the property transfer, i.e. Susan receives the proceeds in her own bank account.

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