What Is Bed and Spouse?
Bed and Spouse is a tax planning technique where you transfer investments to your spouse or civil partner before they sell. The transfer itself is tax-free. Your spouse then sells the shares and pays CGT at their own rate, using their own Annual Exempt Amount.
The name comes from "Bed and Breakfasting," an old strategy where you sold shares on one day and bought them back the next morning. HMRC closed that loophole in 1998 with the 30-day matching rule. If you sell and repurchase the same shares within 30 days, the sale is matched to the new purchase and the gain is effectively ignored.
The 30-day rule applies to you personally. It does not apply to your spouse. So you transfer the shares to them (tax-free under s58 TCGA 1992), and they sell. The family still realises the gain, but at a lower tax cost.
Why This Saves Tax
Two people means two Annual Exempt Amounts. In 2026/27, each person can realise £3,000 of capital gains tax-free. A married couple can therefore shelter £6,000 between them.
Beyond the allowance, the rate of CGT depends on the seller's income. A basic-rate taxpayer pays 10% on share gains. A higher-rate taxpayer pays 20%. If one spouse earns £80,000 and the other earns £25,000, routing the sale through the lower earner can halve the CGT rate on gains that fall within basic-rate band headroom.
Worked Example: £20,000 Gain on Shares
James earns £65,000 and holds shares with an unrealised gain of £20,000. His wife Sarah earns £28,000 and has not used any of her CGT allowance this year. Both are in different tax bands for CGT purposes.
Scenario A: James sells the shares himself
- Gain: £20,000
- Less Annual Exempt Amount: £3,000
- Taxable gain: £17,000
- James is a higher-rate taxpayer, so CGT rate on shares is 20%
- Tax due: £17,000 x 20% = £3,400
Scenario B: James transfers shares to Sarah, who sells
- Transfer from James to Sarah: no CGT, no Stamp Duty
- Sarah sells. Gain: £20,000
- Less Sarah's Annual Exempt Amount: £3,000
- Taxable gain: £17,000
- Sarah's basic-rate band headroom: £37,700 - £28,000 = £9,700 (after personal allowance is applied to her salary)
- £9,700 of the gain taxed at 10% = £970
- Remaining £7,300 taxed at 20% = £1,460
- Total tax due: £2,430
Tax saved: £3,400 - £2,430 = £970. If James had also used his own £3,000 allowance on other gains, the saving would be even larger because Scenario A would lose the allowance entirely.
Comparison: Selling Yourself vs Bed and Spouse
This table shows the tax on a £20,000 share gain in 2026/27, assuming the seller has no other gains that year.
| Higher-Rate Seller | Basic-Rate Spouse Sells | Saving | |
|---|---|---|---|
| Gain | £20,000 | £20,000 | - |
| Annual Exempt Amount | £3,000 | £3,000 | - |
| Taxable gain | £17,000 | £17,000 | - |
| CGT rate(s) | 20% | 10% / 20% split | - |
| CGT due | £3,400 | £2,430 | £970 |
Based on 2026/27 CGT rates. Basic-rate spouse assumed to have £9,700 of basic-rate band headroom remaining. Numbers are rounded.
Step-by-Step Process
- Gift the shares to your spouse. Complete a stock transfer form (J30 for certificated shares, or contact your broker for an in-specie transfer between accounts). No CGT arises. No Stamp Duty applies.
- Your spouse sells the shares. They sell on the open market through their own brokerage account. The acquisition cost for CGT purposes is your original cost basis (transferred over with the gift).
- Report the gain. If the gain exceeds the £3,000 Annual Exempt Amount, your spouse reports it to HMRC. They can use the Capital Gains Tax service on GOV.UK, or include it in their Self Assessment return if they already file one.
- Your spouse can reinvest. They might buy back the same shares in their own name, or better yet, shelter them in an ISA. Buying in an ISA means all future growth is completely tax-free.
Bed and ISA: The Extra Step
If your spouse has unused ISA allowance (£20,000 in 2026/27), they can buy back the shares inside their Stocks and Shares ISA after selling. This locks in the tax-free status permanently. All dividends and future gains within the ISA wrapper are free from Income Tax and CGT.
You can do the same with your own ISA allowance. Sell shares to crystallise gains up to your £3,000 allowance, then repurchase inside your own ISA. This variant is called "Bed and ISA" and does not require a spousal transfer, but it does trigger the 30-day matching rule for any shares you sell and rebuy yourself outside the ISA.
Risks and Limitations
- •The transfer must be genuine. You are giving your spouse an asset. Once transferred, it belongs to them legally. You cannot attach a side agreement requiring them to sell and hand the proceeds back. HMRC can challenge sham transactions.
- •Divorce risk. If you transfer large holdings to your spouse and the relationship breaks down, those assets are theirs. Family courts consider the whole financial picture during divorce proceedings, but the legal ownership has changed.
- •Separation changes the rules. Interspousal transfers are only CGT-free while you are living together. From April 2023, separating couples have until the later of three years after separation or the next 31 January to make tax-free transfers. After that window, normal CGT rules apply.
- •Transaction costs. If your spouse buys shares on the open market (rather than receiving a gift), 0.5% Stamp Duty Reserve Tax applies to the purchase. Brokerage dealing fees also apply on both the sale and repurchase.
- •Cost basis carries over. Your spouse inherits your original acquisition cost. They do not get a "step up" to market value. The gain is deferred, not eliminated, unless your spouse also uses their Annual Exempt Amount or ISA wrapper.
Edge Cases
- •Unmarried couples. This strategy only works for married couples and civil partners. Transfers between unmarried partners are treated as disposals at market value and trigger CGT.
- •Shares with losses. You can also transfer shares standing at a loss to your spouse. They sell and crystallise the loss, which can offset other gains they have in the same tax year or be carried forward.
- •EIS and VCT shares. Shares held under the Enterprise Investment Scheme or Venture Capital Trust rules have their own CGT treatment. Transferring them to a spouse may forfeit the original tax reliefs. Take advice before transferring any tax-advantaged shares.
- •Non-UK resident spouse. If your spouse is not UK tax resident, they may not be liable to UK CGT on share disposals at all (UK CGT on shares generally only applies to UK residents). This adds complexity and you should get professional advice.
When to Do This
The best time is before 5 April each year, so you use the current year's Annual Exempt Amount before it expires. The £3,000 allowance cannot be carried forward. If you don't use it, it's gone.
You can do this every tax year. A couple with a growing share portfolio can methodically transfer and sell £6,000 of gains per year (£3,000 each) completely free of CGT. Over ten years, that shelters £60,000 of gains at zero tax.