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New flat rate CGT to end bed and spouse ploy

Spouses will no longer be able to make use of a capital gains tax benefit under the new 18% charge.

New flat rate CGT to end bed and spouse ploy

The trick of transferring shares to a spouse who pays lower or no tax to reduce capital gains tax (CGT) when the stock is sold will no longer be viable under the new 18% flat rate of CGT.

Previously those using these so-called bed and spousing techniques could keep CGT low by transferring shares to a spouse with a beneficial tax rate at the end of the tax year, meaning no CGT liability.

Extra benefit would then be gained when the spouse sold the shares as the couple could calculate the taper relief over their combined holding period of both spouses, getting increased taper relief.

Richard Leeson, head of UK development for Prudential International, said that bed and spousing will no longer be available with the 18% tax rate.

‘Bed and spousing is dead under the new CGT regime as they will have to pay a flat rate of 18% no matter how long they have held the shares,’ he said. ‘I think that people will have no choice but to just sit on shares now and this restricts their investment freedom.’

The government clamped down on a similar ‘bed and breakfasting’ scheme in 2006 that stopped people selling all or part of their shares to crystallise a profit under the CGT on the last day of the tax year and then re-buying them the next day in the new tax year. New rules mean you now have to wait one month before buying shares in a company in which you sold shares. 

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