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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Land: exchange of joint interests: examples

Example 1

A and B, who are not connected persons, jointly own two parcels of farmland, Greenacre and Redacre.

The land was acquired by inheritance at market values of £50,000 for each parcel.

A and B decide to exchange their joint interests so that A will own Greenacre and B will own Redacre.

At the time of the exchange both parcels have a market value of £200,000.

The five conditions in TCGA92/S248A, see CG73002, are met and A and B claim roll-over relief under TCGA92/S248B, see CG73007.

The relief on the disposal of the half-share interests is computed as follows.

In A’s case the amount or value of the consideration for the disposal of the relinquished interest (half interest in Redacre) is £100,000 (the value of a half interest in Greenacre). This is equal to the market value of that relinquished interest. Consequently relief is computed according to the rules in TCGA 1992/S248B(1), see CG73007. B’s case is similar.

  £
   
Actual consideration (£200,000 x 50%) 100,000
Less cost (£50,000 x 50%) 25,000
Gain 75,000
Less roll-over relief 75,000
Gain to be charged nil
   
Deemed no gain / no loss consideration 25,000

Acquisition cost of acquired half-share interests

  £
   
Actual cost 100,000
Less excess of actual over no gain / no loss 75,000
Deemed cost 25,000

The cost of acquisition of Greenacre and Redacre for A and B respectively is

  £
   
Actual cost of original half-share 25,000
Deemed cost of half-share on exchange 25,000
Total cost 50,000

Example 2

A and B, who are not connected persons, jointly own two parcels of farmland, Greenacre and Redacre.

The land was acquired by inheritance at market values of £50,000 for each parcel.

A and B decide to exchange their joint interests so that A will own Greenacre and B will own Redacre.

At the time of the exchange Greenacre has a market value of £200,000 and Redacre a market value of £250,000.

The five conditions in TCGA92/S248A, see CG73002, are met and A and B claim roll-over relief under TCGA92/S248B, see CG73007.

The relief on the disposal of the half-share interests is computed as follows.

In A’s case the amount or value of the consideration for the disposal of the relinquished interest (half interest in Redacre) is £100,000 (the value of a half interest in Greenacre). This is less than the market value of that relinquished interest, £125,000. Consequently relief is computed according to the rules in TCGA 1992/S248B(1), see CG73007 and example 1.

In B’s case the amount or value of the consideration for the disposal of the relinquished interest (half interest in Greenacre) is £125,000 (the value of a half interest in Redacre). This exceeds the market value of that relinquished interest. The excess consideration £25,000 (125,000 - 100,000) is less than the amount of the gain £100,000

Consequently relief is computed according to the rules in TCGA 1992/S248B(2), see CG73007, the gain being reduced to £25,000 (the excess consideration) and the roll-over relief being restricted accordingly.

  £
   
Actual consideration (£250,000 x 50%) 125,000
Less cost (£50,000 x 50%) 25,000
Gain 100,000
Less roll-over relief 75,000
Gain to be charged 25,000

Acquisition cost of acquired half-share interest in Redacre

  £
   
Actual cost (value of half interest in Greenacre) 100,000
Less amount by which gain is reduced 75,000
Deemed cost 25,000