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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Private residence relief: exchange of jointly owned dwelling house: disposals prior to 6 April 2010: ESC/D26: example

In January 2001 Mr B and Miss K jointly bought Holly Cottage for £150,000. They lived there together until May 2005 when they jointly bought Ivy Cottage for £190,000. Thereafter Miss K lived at Ivy Cottage while Mr B remained at Holly Cottage. In November 2010 Miss K exchanged her interest in Holly Cottage for Mr B’s interest in Ivy Cottage, so that she was sole owner of Ivy Cottage and he was sole owner of Holly Cottage. Because Ivy Cottage was more valuable than Holly Cottage she paid him £25,000 as part of the transfer arrangement.

If each of them disposed of their respective cottages immediately after the transfer; that is, if Miss K were to sell Ivy Cottage and Mr B were to sell Holly Cottage, the gains on each disposal would attract full private residence relief. So, if

  • Miss K undertakes to accept for Capital Gains Tax purposes that she acquired Ivy Cottage for £190,000 in May 2005,


  • Mr B undertakes to accept for Capital Gains Tax purposes that he acquired Holly Cottage for £150,000 in January 2001

then any gains arising on the transfer of either interest are treated as fully relieved. The equalisation payment is ignored and forms no part of the base cost of Miss K.