CG73000 - Land: exchange of joint interests
This guidance covers the reliefs available when there is an exchange of interest in land.
It is set out as follows:-
- Introduction
- Conditions for relief (TCGA92/S248A)
- Rollover relief (TCGA92/S248B)
- Examples
- Excluded land (TCGA92/S248C)
For guidance on “relief on disposal of joint interests in private residence” under TCGA92/S248E, see CG65150.
1. Introduction
The exchange of interests in land which are jointly owned by two or more persons constitutes a disposal by each owner for capital gains tax purposes. In some cases, the exchange is made simply to rationalise the ownership of the land and to make it easier to deal with. The exchange may give rise to a charge to Capital Gains Tax or Corporation Tax on Chargeable Gains, and this is the case even where no money changes hands.
For exchanges on or after 6 April 2010, TCGA1992/S248A-E provides a form of roll-over relief in certain circumstances to facilitate rearrangements of holdings of land.
Previously an Extra-Statutory Concession, ESC/D26, published in 1984, provided relief in relation to disposals prior to 6 April 2010.
This guidance sets out:-
- The conditions for obtaining relief;
- Definitions of various terms;
- Calculation of the relief;
- Land that is excluded from obtaining relief;
- Relief where an associated milk quota is involved;
- Relief where a private residence is involved;
- Relief where spouses are joint owners;
- Relief where the exchanges are uneven.
The guidance previously provided on ESC/D26 has been archived. Please contact the Capital Gains Technical Team if you need advice on this ESC.
Guidance on Milk Quotas is included, but these were abolished on 31 March 2015 so only disposals prior to this date will be able to claim relief. This guidance has been archived.
2. Conditions for relief
TCGA 1992/S248A
Roll-over relief under TCGA92/S248B applies where five conditions are met. These are:-
1) a person (“the landowner”) and one or more other persons (“the co-owners”) jointly hold:-
- a holding of land, or
- two or more separate holdings of land
2) the landowner disposes of an interest (“the relinquished interest”) in:-
- the holding, or
- one or more of the holdings
to the co-owner or one or more of the co-owners.
3) the consideration for the disposal is or includes an interest (“the acquired interest”) in a holding of land held jointly by the landowner and one or more of the co-owners.
4) as a consequence of the disposal (together with any related disposals) the landowner and each of the co-owners become:-
- in the case of a single holding, the sole owner of part of the holding, or
- in the case of two or more holdings, the sole owner of one or more of the holdings.
5) the acquired interest is not an interest in “excluded land” (TCGA92/248C, see below).
TCGA 1992/S248A(7)
Some of the terms used in the legislation are defined for the purposes of the section:-
A holding of land includes an estate or interest in a holding of land and is to be construed in accordance with TCGA92/S243 (3), see CG72200.
Holding land jointly means holding as joint tenants or tenants in common in England, Wales and Northern Ireland as well as coparceners in Northern Ireland. In Scotland, holding land as joint owners or owners in common.
Co-owner means any person who holds land jointly with the landowner.
A related disposal is a disposal of an interest in the holding or one or more of the holdings at the same time as the disposal in condition B:-
- by the landowner to a co-owner, or
- by a co-owner to the landowner or another co-owner.
Spouses or civil partners who are living together are treated as a single landowner or a single co-owner for the purposes of the relief.
3. The relief
TCGA 1992/S248B
Where the relevant conditions are met then the landowner may make a claim for relief. The time limit in TMA70/S43 applies, see CG13750.
The amount of the relief depends on whether or not the interests exchanged are of equal value. The relief due where the amounts are of equal value or unequal value is set out below.
The relinquished interest and acquired interest are of equal value
Where the amount or value of the consideration for the disposal of the relinquished interest is equal to the value of the acquired interest, the landowner is treated:-
- as if the consideration were of such amount such that there is no gain/no loss on the disposal, and
- as if the consideration for the acquisition of the acquired interest were reduced by the excess of the actual consideration for the disposal over the no gain/no loss consideration which the landowner is treated as receiving.
The relinquished interest is of lower value than the acquired interest
The same treatment as above applies where the amount or value of the consideration for the disposal of the relinquished interest is less than the market value of the acquired interest. Therefore, the landowner is treated:-
- as if the consideration were of such amount such that there is no gain/no loss on the disposal, and
- as if the consideration for the acquisition of the acquired interest were reduced by the excess of the actual consideration for the disposal over the no gain/no loss consideration which the landowner is treated as receiving.
The relinquished interest is of higher value than the acquired interest
Where the amount or value of the consideration for the disposal of the relinquished interest exceeds the market value of the market value of the acquired interest, and the excess (“the excess consideration”) is less than the amount of the gain (whether all chargeable gain or not) accruing on the disposal, the landowner is treated:-
- as if the amount of the gain on the disposal of the relinquished interest were reduced to the amount of the excess consideration, and
- as if the consideration for the acquisition of the acquired interest were reduced by the amount by which the gain is reduced (or the amount by which the chargeable gain is proportionately reduced where that applies).
If the gain is not all chargeable gain, the amount of the chargeable gain is reduced proportionately.
Note that the relief claimed by the landowner has no effect on the capital gains tax treatment of any co-owner.
Equalisation payments
Where the market value of the interests in land differ, it is common for an equalisation payment to be made by the landowner disposing of the lower value interest,to the landowner disposing of the higher value interest. If an equalisation payment is made, this should be brought into account when calculating the consideration received by the disponer, and the consideration paid by the acquirer.
See Example 3 below for further information.
Connected parties
Where the parties to the land exchange are connected, market value rules will apply to the transactionin accordance with TCGA1992/S17, see CG14530. Equalisation payments, made as part of connected party transactions where market value is applied, should be ignored.
See Example 4 below for further information.
4. Examples
Example 1
A and B, who are not connected persons, jointly own two parcels of farmland, Greenacre and Redacre.
The land was acquired by inheritance at market values of £50,000 for each parcel.
A and B decide to exchange their joint interests so that A will own Greenacre and B will own Redacre.
At the time of the exchange both parcels have a market value of £200,000.
The five conditions in TCGA92/S248A, see above, are met and A and B claim roll-over relief under TCGA92/S248B.
The relief on the disposal of the half-share interests is computed as follows.
In A's case the amount or value of the consideration for the disposal of the relinquished interest (half interest in Redacre) is £100,000 (the value of a half interest in Greenacre). This is equal to the market value of that relinquished interest. Consequently relief is computed according to the rules in TCGA 1992/S248B(1). B's case is similar.
A. Compute A’s consideration
= Consideration for disposal of Redacre
= £200,000 x 50%
= £100,000
B. Compute A’s allowable expenditure
= Cost of Redacre
= £50,000 x 50%
= £25,000
C. Compute A’s gain
= Consideration for disposal of Redacre (A) - Allowable expenditure (B)
= £100,000 - £25,000
= £75,000
D. Compute A’s rollover relief amount
In this case, the full amount of £75,000 can be rolled over.
E. Compute A’s chargeable gain
= Gain (C) - Rollover relief (D)
= £75,000 - £75,000
= £ nil
F. Compute A’s consideration to be of such amount as to result in no gain/no loss
As the total allowable expenditure is £25,000, this is amount of consideration that would result in no gain/no loss. This is the amount of consideration that should therefore be used for the disposal.
G. Compute A’s cost of acquisition for the acquired interest
= Actual cost (£100,000) - excess of actual consideration over no gain/no loss consideration (A - F)
= £100,000 - (£100,000 - £25,000)
= £100,000 - £75,000
= £25,000
H. Compute A’s total acquisition costs of Greenacre
= Original acquisition cost of half share + Cost of acquisition of acquired interest (G)
= £25,000 + £25,000
= £50,000
Example 2
A and B, who are not connected persons, jointly own two parcels of farmland, Greenacre and Redacre.
The land was acquired by inheritance at market values of £50,000 for each parcel.
A and B decide to exchange their joint interests so that A will own Greenacre and B will own Redacre.
At the time of the exchange Greenacre has a market value of £200,000 and Redacre a market value of £250,000.
The five conditions in TCGA92/S248A are met and A and B claim roll-over relief under TCGA92/S248B.
The relief on the disposal of the half-share interests is computed as follows.
In A's case the amount or value of the consideration for the disposal of the relinquished interest (half interest in Redacre) is £100,000 (the value of a half interest in Greenacre). This is less than the market value of that relinquished interest, £125,000. Consequently relief is computed according to the rules in TCGA 1992/S248B(1), see example above.
In B's case the amount or value of the consideration for the disposal of the relinquished interest (half interest in Greenacre) is £125,000 (the value of a half interest in Redacre). This exceeds the market value of that relinquished interest. The excess consideration £25,000 (£125,000 - £100,000) is less than the amount of the gain £100,000.
Consequently relief is computed according to the rules in TCGA 1992/S248B(2), the gain being reduced to £25,000 (the excess consideration) and the roll-over relief being restricted accordingly.
A. Compute B’s consideration
= Consideration for disposal of Greenacre
= £250,000 x 50%
= £125,000
B. Compute B’s allowable expenditure
= Cost of Greenacre
= £50,000 x 50%
= £25,000
C. Compute B’s gain
= Consideration for disposal of Greenacre (A) - Allowable expenditure (B)
= £125,000 - £25,000
= £100,000
D. Compute B’s rollover relief amount
In this case, only £75,000, as above, can be rolled over.
E. Compute B’s chargeable gain
= Gain (C) - Rollover relief (D)
= £100,000 - £75,000
= £25,000
F. Compute the amount by which B’s gain was reduced
B’s gain was reduced by £75,000.
G. Compute B’s cost of acquisition for the acquired interest
= Actual cost (£100,000) - amount by which B’s gain was reduced (A - F)
= £100,000 - £75,000
= £25,000
H. Compute B’s total acquisition costs of Redacre
= Original acquisition cost of half share + Cost of acquisition of acquired interest (G)
= £25,000 + £25,000
= £50,000
Example 3
A and B, who are not connected persons, jointly own two parcels of farmland, Greenacre and Redacre.
The land was acquired by inheritance at market values of £50,000 for each parcel.
A and B decide to exchange their joint interests so that A will own Greenacre and B will own Redacre.
At the time of the exchange Greenacre has a market value of £200,000 and Redacre a market value of £250,000.
An equalisation payment will be paid by B to A of £25,000 to balance the value being passed between the parties.
The five conditions in TCGA92/S248A are met and A and B claim roll-over relief under TCGA92/S248B.
The relief on the disposal of the half-share interests is computed as follows.
In A's case the amount or value of the consideration for the disposal of the relinquished interest (half interest in Redacre) is £100,000 (the value of a half interest in Greenacre), plus B’s equalisation payment of £25,000.
As the consideration that A received of £125,000 has only been part reinvested in land (£100,000 being the value of the half interest in Greenacre that they gave to acquire the new land), only partial rollover will be available. The excess consideration £25,000 (£125,000 - £100,000) is less than the amount of the gain £100,000. Consequently relief is computed according to the rules in TCGA 1992/S248B(2), the gain being reduced to £25,000 (the excess consideration) and the roll-over relief is restricted accordingly.
In B's case the consideration they received was £100,000 (the value they received for giving up their interest in Greenacre, i.e. the value of Redacre). To acquire their interest in Redacre they gave their share of Greenacre (£100,000) plus cash of £25,000. As they have invested all of the consideration they received, full rollover relief is due. Consequently relief is computed according to the rules in TCGA 1992/S248B(1), see example above.
A. Compute A’s consideration
= Consideration for disposal of Greenacre
= (£200,000 x 50%) + £25,000
= £125,000
B. Compute A’s allowable expenditure
= Cost of Greenacre
= £50,000 x 50%
= £25,000
C. Compute A’s gain
= Consideration for disposal of Greenacre (A) - Allowable expenditure (B)
= £100,000 - £25,000
= £75,000
D. Compute A’s rollover relief amount
In this case, only £50,000, as above, can be rolled over.
E. Compute A’s chargeable gain
= Gain (C) - Rollover relief (D)
= £75,000 - £50,000
= £25,000
F. Compute the amount by which A’s gain was reduced
A’s gain was reduced by £50,000.
G. Compute A’s cost of acquisition for the acquired interest
= Actual cost (£100,000) - amount by which A’s gain was reduced (A - F)
= £100,000 - £75,000
= £25,000
H. Compute A’s total acquisition costs of Redacre
= Original acquisition cost of half share + Cost of acquisition of acquired interest (G)
= £25,000 + £25,000
= £50,000
Example 4
A and B, who are connected persons, jointly own two parcels of farmland, Greenacre and Redacre.
The land was acquired by inheritance at market values of £50,000 for each parcel.
A and B decide to exchange their joint interests so that A will own Greenacre and B will own Redacre.
At the time of the exchange Greenacre has a market value of £200,000 and Redacre a market value of £250,000.
The five conditions in TCGA92/S248A are met and A and B claim roll-over relief under TCGA92/S248B.
The relief on the disposal of the half-share interests is computed as follows.
Applying the connected parties rule, in A's case the amount or value of the consideration for the disposal of the relinquished interest is, by virtue of s.17,the market value of the asset being disposed of, i.e £125,000 being a half interest in Redacre. Also, by virtue of s.17, the value of the acquisition is the market value of the acquired asset, i.e. £100,000 being a half interest in Greenacre. As only part of the consideration received has been reinvested in the new asset, only partial rollover relief will be available. Consequently relief is computed according to the rules in TCGA 1992/S248B(2), the gain being reduced to £25,000 (the excess consideration) and the roll-over relief being restricted accordingly.
This exceeds the market value of that relinquished interest of Greenacre, £100,000. The excess consideration of £25,000 (£125,000 - £100,000) is less than the amount of the gain £100,000.
Similarly, in B's case the amount or value of the consideration for the disposal of the relinquished interest is the market value of a half interest in Greenacre,£100,000. This is less than the market value of the acquired interest of a half interest in Redacre, £125,000. As the consideration received by B has been fully reinvested in the new asset, full rollover relief will be due. Consequently, the relief is also computed according to the rules in TCGA 1992/S248B(1), see Example 1 above.
A. Compute A’s consideration
= Market value of Redacre
= £250,000 x 50%
= £125,000
B. Compute A’s allowable expenditure
= Cost of Redacre
= £50,000 x 50%
= £25,000
C. Compute A’s gain
= Consideration for disposal of Redacre (A) - Allowable expenditure (B)
= £125,000 - £25,000
= £100,000
D. Compute A’s rollover relief amount
In this case, only £75,000, as above, can be rolled over.
E. Compute A’s chargeable gain
= Gain (C) - Rollover relief (D)
= £100,000 - £75,000
= £25,000
F. Compute the amount by which A’s gain was reduced
A’s gain was reduced by £75,000.
G. Compute A’s cost of acquisition for the acquired interest
= Market value of Greenacre (£100,000) - amount by which A’s gain was reduced (A - F)
= £100,000 - £75,000
= £25,000
H. Compute A’s total acquisition costs of Redacre
= Original acquisition cost of half share + Cost of acquisition of acquired interest (G)
= £25,000 + £25,000
= £50,000
5. Excluded land
TCGA 1992/S248C
Relief is not available to the extent that the acquired interest in land is “excluded land”.
Land is “excluded land” to the extent that it is:-
- a dwelling-house or part of a dwelling-house,
- used as the landowner's only or main residence, and
- the private residence relief provisions would prevent all or part of a gain accruing on disposal from being a gain during a “material time”.
A “material time” means during a period of six years from the date of the acquisition of the acquired interest.
Where the land was not “excluded land” at the date of the acquisition but becomes “excluded land” within 6 years of the acquisition, any chargeable gain accruing on the disposal of the relinquished interest must be re-determined without regard to any relief previously given.
TCGA92/S248C (4) provides that any adjustments required where the land becomes “excluded land”, whether by way of assessment or otherwise, may be made at any time, despite anything in section 34 of TMA70.
Where the relinquished interests and the acquired interests are dwelling-houses which become the only or main residence of the landowner and co-owners then relief may be available under TCGA92/S248E, see CG65150.