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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Capital Gains Manual: Introduction and computation: occassions of charge: exchanges of assets: examples 1 and 2

Example 1

In June 2014 X acquired a piece of jewellery for £5,000 and in June 2015 his brother Y acquired a painting for £4,000. In July 2016 when the piece of jewellery had a market value of £8,000 and the painting a market value of £8,500 the two articles were exchanged.

As X and Y are connected persons the disposal proceeds are the market values, at the date of exchange, of the assets exchanged, see CG13090.

Disposal of jewellery by X    
Consideration = value of jewellery at date of exchange  
  Disposal proceeds £ 8,000
LESS Cost   £ 5,000
  Chargeable gain £ 3,000

 

Disposal of painting by Y    
Consideration = value of painting at date of exchange  
  Disposal proceeds £ 8,500
LESS Cost   £ 4,000
  Chargeable gain £ 4,500

 

The cost of the new acquisition in each case is the market value of the asset at the date of exchange, TCGA92/S17 (1)(a). Therefore X’s acquisition of the painting in June 2015 for its market value of £8,500 and Y’s acquisition of the jewellery for its market value of £8,000.

 

Example 2

Assume that the parties to the exchange transaction in Example 1 are not connected persons and that a cash adjustment was made equal to the difference in the values so that X paid £500 to Y. The gains would be the same as in Example 1 but the mechanics of the computations would differ.

Disposal of jewellery by X    
     
Consideration received =  value of painting at date of exchange less cash adjustment paid by X to Y  
  Disposal proceeds £ 8,000
LESS Cost   £ 5,000
  Chargeable gain £ 3,000
Disposal of painting by Y    
     
Consideration received = value of jewellery at date of exchange plus cash adjustment received by Y from X  
  Disposal proceeds   
(£8,000 + £500) £ 8,500    
  LESS Cost   £ 4,000
    Chargeable unindexed gain £ 4,500

 

The cost of the new acquisitions in each case is the value of the consideration given, TCGA92/S38 (1)(a).

Acquisition of painting by X

Consideration given = value of jewellery at date of exchange (£8,000) plus cash payment to Y (£500).   Cost to X = £8,500.

Y’s acquisition of the jewellery

Consideration given = value of painting at date of exchange (£8,500) minus cash adjustment (£500).  Cost to Y = £8,000.