It is very common for advisers to come across clients who own land jointly with one or more other individuals. Sometimes this has happened because of a partnership or joint venture and sometimes simply so that income can be shared, perhaps between spouses or siblings.

But what happens when the individuals want to separate their interests maybe for family reasons or even due to disagreement?

Generally, a disposal of an interest in land or buildings is a chargeable event for capital gains tax, even if it is in exchange for another property interest (rather than just for cash).

However, a form of rollover relief is allowed by the tax legislation giving tax relief for joint owners to exchange their interests without giving rise to a capital gains tax charge. This relief was previously concessionary, but was given statutory force with effect from 6 April 2010. The relief can be claimed under section 248A TCGA 1992 subject to these conditions:

1. A person and one or more other persons (the ‘co-owners’) jointly own a holding of land or two or more separate holdings (eg as joint tenants or tenants in common in England and Wales)

2. the person disposes of an interest in one of those holdings to one of more of the co-owners

3. the consideration given by the co-owner(s) for that interest comprises or includes an interest in one of the jointly-owned holdings

4. as a consequence of that disposal the landowner and each of the co-owners become the sole holders of part of the holding, or, where there are two or more jointly-held holdings, each becomes the sole owner of one or more of the holdings

5. the acquired interest is not an interest in a dwelling-house or part of a dwelling-house and the principal private residence exemption would apply to any part of a gain arising on its subsequent disposal within six years of its acquisition.

In many cases this could mean that no capital gains tax becomes payable on the exchange of interests. Broadly, the capital gain arising on the disposal may be eligible for rollover and the acquisition ‘base’ cost is reduce accordingly be the amount of that gain.

Capital gains tax can be payable where the consideration received (ie the market value of the property acquired) exceeds the value of the disposed property. In such cases, only the excess value not eligible for rollover relief will be liable to capital gains tax.

This is a complex subject, but this relief may provide a good solution for mitigating tax liabilities in such cases. Remember that there may be other tax liabilities to consider, such as stamp duty land tax, although there is a similar relief for that as well.

As with all such tax situations, advice should also be sought before proceeding. For further details call Alan Boby on 01295 250401 or email aboby@ellacotts.co.uk

Alan Boby

Ellacotts LLP

Tags: UK200

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