ACCA Taxation (F6) Practice Exam

In a transfer between spouses, the value of a gift to the transferee is determined by the cost at the date the original spouse acquired it. This approach is in line with the principle of 'no gain, no loss' on transactions between spouses.

Essentially, when an asset is transferred between spouses, any gain or loss that would normally be recognized for tax purposes is effectively deferred. Instead of determining the value based on the current market conditions at the time of transfer (which could lead to taxable gains or losses), the original cost basis is retained. Hence, the transferee takes on the original spouse's cost basis for the asset, which means the amount that was initially paid for it. This treatment helps to avoid immediate tax implications because it does not realize any gain unless the asset is ultimately sold or disposed of by the transferee.

This principle is designed to provide tax relief in marital circumstances, allowing for a more favorable treatment of transfers and minimizing the potential for immediate adverse tax consequences.