CG18150 - Annual exempt amount: exploitation

Taxpayers can arrange their affairs in such a way that they obtain the benefit of more than one annual exemption against the gain on a single asset. The two most common methods of doing this are-

i) Fragmentation: the intention is to increase the number of the disposer’s exemptions by fragmenting the disposal over two or more tax years;

ii) Asset splitting: the intention is to increase the number of disposers by spreading the ownership of the asset, usually by gifting. A single asset may be split into fractional interests, or a shareholding divided. The donees are typically minor children or other relatives. Transfers from one spouse to another or between civil partners can also achieve the same end.

You should remember that not every fragmented disposal is an avoidance device and you may find that there were good commercial reasons for, say, the disposal of land in a number of tranches. Similarly, a gift may well be genuine even though there is an overall tax benefit.

Any challenge may involve establishing that a disposal was made under an oral contract pre-dating a written contract, demonstrating there was an unconditional contract for the sale of an asset before a gift was made or even a gift was a sham.

If you are considering challenging any arrangements it is essential to find out all the relevant facts and to examine all relevant documents, for example, correspondence, minutes of discussion, deeds or declarations of trusts.

When considering any challenge to any arrangements you should also give consideration to the amount of tax at risk.