CG13094 - 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 jewelery 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\n(£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.