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This guidance covers the reliefs available when there is an exchange of interest in land.

It is set out as follows:-

1. Introduction
2. Conditions for relief (TCGA92/S248A)
3. Rollover relief (TCGA92/S248B)
4. Examples
5. Excluded land (TCGA92/S248C)

For guidance on 鈥渞elief on disposal of joint interests in private residence鈥� under TCGA92/S248E, see CG65150.

1. Introduction

The exchange of interests in land which are jointly owned by two or more persons constitutes a disposal by each owner for capital gains tax purposes. 听In some cases, the exchange is made simply to rationalise the ownership of the land and to make it easier to deal with. 听The exchange may give rise to a charge to Capital Gains Tax or Corporation Tax on Chargeable Gains, and this is the case even where no money changes hands.

For exchanges on or after 6 April 2010, TCGA1992/S248A-E provides a form of roll-over relief in certain circumstances to facilitate rearrangements of holdings of land.

Previously an Extra-Statutory Concession, ESC/D26, published in 1984, provided relief in relation to disposals prior to 6 April 2010.

This guidance sets out:-

• The conditions for obtaining relief;
• Definitions of various terms;
• Calculation of the relief;
• Land that is excluded from obtaining relief;
• Relief where an associated milk quota is involved;
• Relief where a private residence is involved;
• Relief where spouses are joint owners;
• Relief where the exchanges are uneven.

The guidance previously provided on ESC/D26 has been archived.听 Please contact the Capital Gains Technical Team if you need advice on this ESC.

Guidance on Milk Quotas is included, but these were abolished on 31 March 2015 so only disposals prior to this date will be able to claim relief.听 This guidance has been archived.

2. Conditions for relief

TCGA 1992/S248A

Roll-over relief under TCGA92/S248B applies where five conditions are met. 听These are:-

听 听 听 听1)听 a person (鈥渢he landowner鈥�) and one or more other persons (鈥渢he co-owners鈥�) jointly hold:-

• a holding of land, or
• two or more separate holdings of land

听 听 听 听2)听 the landowner disposes of an interest (鈥渢he relinquished interest鈥�) in:-

• the holding, or
• one or more of the holdings

听 听 听 听to the co-owner or one or more of the co-owners.

听 听 听 听3)听 the consideration for the disposal is or includes an interest (鈥渢he acquired interest鈥�) in a holding of land held jointly by the landowner and one or more of the co-owners.

听 听 听 听4)听 as a consequence of the disposal (together with any related disposals) the landowner and each of the co-owners become:-

• in the case of a single holding, the sole owner of part of the holding, or
• in the case of two or more holdings, the sole owner of one or more of the holdings.

听 听 听 听5)听 the acquired interest is not an interest in 鈥渆xcluded land鈥� (TCGA92/248C, see below).

TCGA 1992/S248A(7)

Some of the terms used in the legislation are defined for the purposes of the section:-

A holding of land includes an estate or interest in a holding of land and is to be construed in accordance with TCGA92/S243 (3), see CG72200.

Holding land jointly means holding as joint tenants or tenants in common in England, Wales and Northern Ireland as well as coparceners in Northern Ireland. 听In Scotland, holding land as joint owners or owners in common.

Co-owner means any person who holds land jointly with the landowner.

A related disposal is a disposal of an interest in the holding or one or more of the holdings at the same time as the disposal in condition B:-

• by the landowner to a co-owner, or
• by a co-owner to the landowner or another co-owner.

Spouses or civil partners who are living together are treated as a single landowner or a single co-owner for the purposes of the relief.

3. The relief

TCGA 1992/S248B

Where the relevant conditions are met then the landowner may make a claim for relief. 听The time limit in TMA70/S43 applies, see CG13750.

The amount of the relief depends on whether or not the interests exchanged are of equal value.听 The relief due where the amounts are of equal value or unequal value is set out below.

The relinquished interest and acquired interest听are of equal value

Where the amount or value of the consideration for the disposal of the relinquished interest is equal to the value of the acquired interest, the landowner is treated:-

• as if the consideration were of such amount such that there is no gain/no loss on the disposal, and
• as if the consideration for the acquisition of the acquired interest were reduced by the excess of the actual consideration for the disposal over the no gain/no loss consideration which the landowner is treated as receiving.

The relinquished interest is of lower value than听the acquired interest

The same treatment as above applies where the amount or value of the consideration for the disposal of the relinquished interest is less than the market value of the acquired interest.听 Therefore, the landowner is treated:-

• as if the consideration were of such amount such that there is no gain/no loss on the disposal, and
• as if the consideration for the acquisition of the acquired interest were reduced by the excess of the actual consideration for the disposal over the no gain/no loss consideration which the landowner is treated as receiving.

The relinquished interest is of higher value than听the acquired interest

Where the amount or value of the consideration for the disposal of the relinquished interest exceeds the market value of the market value of the acquired interest, and the excess (鈥渢he excess consideration鈥�) is less than the amount of the gain (whether all chargeable gain or not) accruing on the disposal, the landowner is treated:-

• as if the amount of the gain on the disposal of the relinquished interest were reduced to the amount of the excess consideration, and
• as if the consideration for the acquisition of the acquired interest were reduced by the amount by which the gain is reduced (or the amount by which the chargeable gain is proportionately reduced where that applies).

If the gain is not all chargeable gain, the amount of the chargeable gain is reduced proportionately.

Note that the relief claimed by the landowner has no effect on the capital gains tax treatment of any co-owner.

4. 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 拢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 拢200,000.

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

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 拢100,000 (the value of a half interest in Greenacre). 听This is equal to the market value of that relinquished interest. Consequently relief is computed according to the rules in TCGA 1992/S248B(1). 听B's case is similar.

A. Compute A鈥檚 consideration

= Consideration for disposal of Redacre

= 拢200,000 x 50%

= 拢100,000

B. Compute A鈥檚 allowable expenditure

= Cost of Redacre

= 拢50,000 x 50%

= 拢25,000

C. Compute A鈥檚 gain

= Consideration for disposal of Redacre (A) - Allowable expenditure (B)

= 拢100,000 - 拢25,000

= 拢75,000

D. Compute A鈥檚 rollover relief amount

In this case, the full amount of 拢75,000 can be rolled over.

E. Compute A鈥檚 chargeable gain

= Gain (C) - Rollover relief (D)

= 拢75,000 - 拢75,000

= 拢 nil

F. Compute A鈥檚 consideration to be of such amount as to result in no gain/no loss

As the total allowable expenditure is 拢25,000, this is amount of consideration that would result in no gain/no loss.听 This is the amount of consideration that should therefore be used for the disposal.

G. Compute A鈥檚 cost of acquisition for the acquired interest

= Actual cost (拢100,000) - excess of actual consideration over no gain/no loss consideration (A - F)

= 拢100,000 - (拢100,000 - 拢25,000)

= 拢100,000 - 拢75,000

= 拢25,000

H. Compute A鈥檚 total acquisition costs of Greenacre

= Original acquisition cost of half share + Cost of acquisition of acquired interest (G)

= 拢25,000 + 拢25,000

= 拢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 拢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 拢200,000 and Redacre a market value of 拢250,000.

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

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 拢100,000 (the value of a half interest in Greenacre). 听This is less than the market value of that relinquished interest, 拢125,000. Consequently relief is computed according to the rules in TCGA 1992/S248B(1), see example above.

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

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

A. Compute B鈥檚 consideration

= Consideration for disposal of Greenacre

= 拢250,000 x 50%

= 拢125,000

B. Compute B鈥檚 allowable expenditure

= Cost of Greenacre

= 拢50,000 x 50%

= 拢25,000

C. Compute B鈥檚 gain

= Consideration for disposal of Greenacre (A) - Allowable expenditure (B)

= 拢125,000 - 拢25,000

= 拢100,000

D. Compute B鈥檚 rollover relief amount

In this case, only 拢75,000, as above, can be rolled over.

E. Compute B鈥檚 chargeable gain

= Gain (C) - Rollover relief (D)

= 拢100,000 - 拢75,000

= 拢25,000

F. Compute the amount by which B鈥檚 gain was reduced

B鈥檚 gain was reduced by 拢75,000.

G. Compute B鈥檚 cost of acquisition for the acquired interest

= Actual cost (拢100,000) - amount by which B鈥檚 gain was reduced (A - F)

= 拢100,000 - 拢75,000

= 拢25,000

H. Compute B鈥檚 total acquisition costs of Redacre

= Original acquisition cost of half share + Cost of acquisition of acquired interest (G)

= 拢25,000 + 拢25,000

= 拢50,000

5. Excluded land

TCGA 1992/S248C

Relief is not available to the extent that the acquired interest in land is 鈥渆xcluded land鈥�.

Land is 鈥渆xcluded land鈥� to the extent that it is:-

• a dwelling-house or part of a dwelling-house,
• used as the landowner's only or main residence, and
• the private residence relief provisions would prevent all or part of a gain accruing on disposal from being a gain during a 鈥渕aterial time鈥�.

A 鈥渕aterial time鈥� means during a period of six years from the date of the acquisition of the acquired interest.

Where the land was not 鈥渆xcluded land鈥� at the date of the acquisition but becomes 鈥渆xcluded land鈥� within 6 years of the acquisition, any chargeable gain accruing on the disposal of the relinquished interest must be re-determined without regard to any relief previously given.

TCGA92/S248C (4) provides that any adjustments required where the land becomes 鈥渆xcluded land鈥�, whether by way of assessment or otherwise, may be made at any time, despite anything in section 34 of TMA70.

Where the relinquished interests and the acquired interests are dwelling-houses which become the only or main residence of the landowner and co-owners then relief may be available under TCGA92/S248E, see CG65150.