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HMRC internal manual

Capital Gains Manual

Land: law of Property Act 1925 Land held on 'trust for sale'

The following guidance sets out the strict legal position regarding tenancies in common in England and Wales. Its purpose is to explain why the documents relating to land held under a tenancy in common take a particular form. However the legal principles outlined do not alter the position of the tenants in common for Capital Gains Tax purposes.

Since the enactment of the Law of Property Act 1925, the legal title to land in England and Wales cannot be held under a tenancy in common. Instead it must be held on a ‘trust for sale’. The legal position is best understood by reference to an example:-

Suppose a piece of land in England is acquired by three individuals A, B and C as tenants in common in equal shares. Each will have a one third beneficial interest in the land (see CG11730). However, the legal title to the land must be held on a trust for sale, and hence the legal title will be in the name of the trustees of that trust for sale. Those trustees may be A, B and C themselves, any two of them, or indeed any other persons. Whoever they are, they will hold the legal title as bare trustees for A, B and C (see CG34300P). This principle was established in Kidson v MacDonald 49TC503.

So whilst each tenant in common has a legal interest in the proceeds of sale of the land, and any rents or profits deriving from the land prior to sale, each has a beneficial interest in the land itself and it is this interest which is of relevance for Capital Gains Tax purposes.

It should be noted that the disposal of the whole or part of an individual tenant in common’s interest in the land, particularly a disposal by way of gift, will normally refer to the disposal of an interest in ‘the proceeds of sale and the net profits and rents therefrom until sale’. Although there may be no actual reference to the interest in the land itself, it will be that interest which has been disposed of, either wholly or partially.

The Trusts of Land and Appointment of Trustees Act 1996 now governs land held on trust for sale and prevents the Settled Land Act 1925 from applying to co-owners.