Spouse Crypto Gifts | UK Capital Gains Tax Optimisation (2024)

In recent times, gifting cryptocurrency to your spouse or civil partner has become a savvy tax-saving move for UK crypto investors. This 'no-gain, no-loss' disposal lets you transfer cryptoassets tax-free, tapping into your partner's annual capital gains allowance.

With growing regulation it's important to understand the broader spectrum of crypto tax, especially before considering tax optimisation. For help navigating the intricacies of taxation in the UK, take a look at our comprehensive UK tax guide.

In this article we dive into the rules and regulations of spouse gifts, unraveling the potential of this completely legal tax-saving strategy. Let’s explore the perks and rules for a smarter approach to your crypto investments!

In the UK, you can gift crypto to your spouse or civil partner to legally avoid, or reduce capital gains tax. This strategy allows both individuals to take advantage of their capital gains allowance when the assets are disposed of. Before putting a strategy in place it’s important to understand how the tax rules work and specific requirements and limitations.

How is a spouse transfer (gift) taxed?

When a crypto asset is transferred (or gifted) between two spouses or civil partners, there is a disposal by the gifter and an acquisition by the receiver for capital gains tax purposes. The disposal is deemed to take place at ‘no-gain and no-loss’ meaning there is no tax due for the gifter. Their spouse, the receiver, is not taxed on the receipt of the asset but will be subject to capital gains tax when they later dispose of it.

• The gifter: The disposal proceeds used in the capital gains calculation is a balancing figure and it is equal to the assets costs of acquisition, plus enhancement expenditure, plus incidental costs of sale.
• The receiver: the gifter’s disposal proceeds figure is the deemed cost of acquisition for the transferee spouse.

Requirements for ‘no-gain, no-loss’ spouse disposals

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

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. There is nothing in the legislation to disapply the no-gain, no-loss rules where the spouses are married and living together but one spouse is non-resident in the UK.

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.

How do spouse gifts work with separation and divorce?

The “no-gain, 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 circ*mstances where the separation is likely to be permanent

For example: if a couple permanently separate during the 2018/19 tax year, any transfers between them up until 5 April 2019 will take place at no-gain and no-loss. As the couple does not live together in 2019/20, any transfer of assets must take place at market value since they are ‘connected person’. Any consideration paid is ignored. The fact that the couple may still be legally married is irrelevant.

Exceptions to the spouse gift rule

The rule of no gain or loss doesn't always apply. Here are situations where it doesn't:

• If the transfer happens on the deathbed (the receiver is treated as a legatee)
• If the transferred asset formed part of the gifting spouse's trading stock
• If the transferred asset becomes part of the receiving spouse's trading stock.

If an individual is engaging in financial trading in cryptoassets and transfers assets into or from the trading stock of this business then the transfers are deemed to take place at market value. This is a complex area and we strongly advise seeking assistance from a qualified tax professional if this applies to your situation.

How to reduce your crypto taxes with spouse gifts

By strategically utilising both spouses' or civil partners' capital gains allowance in the tax year of asset disposal, you can achieve significant tax reductions. Furthermore, for couples where one partner falls into a lower tax bracket, there's an added advantage – a reduced tax rate, translating to a lower tax bill. Let's break down these tax hacks and make your crypto journey a bit lighter on the wallet.

Utilising your spouse’s annual capital gains allowance

The UK tax year runs from 6th April to 5th April the following year and all UK taxpayers have an annual capital gains allowance, which determines the amount of capital gains you can earn before becoming liable for tax. By strategically transferring crypto to your spouse or civil partner and carefully timing disposals, each partner can utilise their capital gains allowance to minimise taxable gains.

Leveraging a spouse’s lower tax rate

Capital gains tax is not a one-size-fits-all scenario; the rate of tax varies based on individual income levels. When one partner finds themselves in a lower tax bracket than the other, strategically transferring assets to the partner in the lower bracket before making disposals can result in substantial savings.

Spouse gifting is a great tax optimisation strategy and can be used alongside other techniques for a massive impact on your tax bill. Take a look at other tax saving opportunities for crypto in our article "Can you avoid paying tax on crypto".

Even though spouse transfers are effectively tax free, if the gifting spouse has to file a tax return for other taxable gains, then the transaction has to be reported. A detailed calculation needs to be submitted - just like you would for any other crypto disposal.

It’s important to keep thorough records of the transfer, including dates, values, and any relevant documentation. Crypto tax calculators can help to keep you on track with tax reporting liabilities - they automate much of the process, saving you time and ensuring accuracy with a consistent approach to crypto valuations.

How to account for spouse gifts in Recap

By using a crypto tax calculator like Recap you can keep track of your whole portfolio and tax liability - simply connect your accounts or upload transaction data and the software applies the corresponding tax treatment to all of your transactions.

To account for spouse gifts in Recap both partners will need their own independent Recap account in order to correctly represent their portfolio and beneficial ownership of funds.

The gifting spouse

Sending a gift or transferring crypto, is likely to be tracked as a withdrawal by your exchange or wallet. To correctly account for the transaction in Recap you’ll need to switch the transaction type to Send Gift (spouse). Recap treats spouse gifts as a no gain/no loss disposal. A summary of gift disposals can be found in the PDF capital gains tax report.

The receiving spouse

Receiving a crypto gift or transfer of crypto, is likely to be tracked as a deposit by your exchange or wallet. To correctly record the transaction in Recap you’ll need to switch the transaction type to Receive Gift (spouse) and add the ‘gift value’ of the asset based on your spouse’s Recap tax report. This value will be used to calculate your capital gain when you eventually dispose of the asset.