HMRC internal manual

Capital Gains Manual

CG12706 - Disposal of assets: mortgages: transfer of asset by way of security

TCGA92/S26 (1)

The transfer of an asset as security (for example, a mortgage of land) or the re- transfer of that asset on redemption of the security, should not be treated as a disposal of the asset.

Creditor enforcing security TCGA92/S26 (2)

Where a creditor deals with an asset for the purpose of enforcing or giving effect to the security for a debt, for example a bank or building society following a repossession order granted because repayments on the mortgage or loan have fallen into arrears, he should be treated as nominee for the debtor so that all his acts are deemed to be the acts of the debtor. Consequently, any gain or loss on disposal of the asset by the creditor is deemed to be the gain or loss of the debtor.

Asset transferred subject to subsisting charge TCGA92/S26 (3)

Where an asset is transferred subject to a subsisting charge

  • the whole asset (ignoring the charge) is deemed to be acquired, and
  • the full value of the charge should be added to any consideration for the transfer.

In the case of Thompson v Salah 47TC559, a sale of property was effected by the execution of a mortgage to the purchaser, followed by a conveyance by the vendor of the equity of redemption in consideration of the release by the purchaser of the mortgage debt. The Court ruled that the gain on disposal was to be computed on the basis that the property was disposed of free of the charge. (Although the case concerned Case VII, similar arguments could have been advanced against a Capital Gains Tax assessment.)

A building is sold for £600,000 and the buyer takes over the obligation to repay a mortgage of which £180,000 is still outstanding. The building is deemed to have been sold by the seller and bought by the buyer for

£600,000 + £180,000 = £780,000.

This is the amount the buyer will have to pay to obtain the unencumbered ownership. At the same time the seller has received £600,000 and has been relieved of a liability of £180,000.