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July 15, 2021

To Me, To You: Rollover Relief & Exchange of Joint Interests

The disposal of property is a chargeable event for capital gains purposes, therefore a liability to capital gains tax ("CGT") can arise. This is the case even if you swap your property for another property and no money changes hands.

However, there is often overlooked CGT relief which applies where there is an exchange of interests in land which are jointly owned by two or more persons. For example, if a husband and wife are getting divorced and they are joint owners of two rental properties, roll-over relief may be available if the wife transfers her half of the first property to her husband in exchange for his half of the second property.

The relief operates by treating the disposal as a no gain/no loss transaction, with the donee inheriting the base cost from the donor which will apply on an eventual sale. If the value of the properties is not equal, then the individual who receives the lower value property can claim the relief and the balance will be subject to CGT.

Conditions for Roll-Over Relief

Roll-over relief applies where the following conditions are met:

  1. A person (the "landowner") owns a holding of land or two or more separate holdings of land jointly with one or more other persons;
  2. The landowner disposes of an interest in the holding or one or more of the holdings to the co-owner;
  3. The consideration for the disposal is or includes an interest in a holding of land held jointly by the landowner and one or more of the co-owners; and
  4. As a consequence of the disposal, the landowner and each of the co-owners become the sole owner of the relevant holding(s).

As noted in the example above, this relief can be useful in divorce proceedings, however can also apply where property owners want to rationalise ownership to simplify their affairs.

It is important to note that this specific relief does not apply with respect to "excluded land", which broadly includes dwellings occupied as a home on which Private Residence Relief applies. However, a modified form of the relief is available where there is an exchange in principal private residences, so expert tax advice should be taken to ensure that the correct relief is applied and the relevant conditions are met.

If you require advice on this relief or any other UK tax matters, please feel free to contact a member of our team.

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