CGT if no profit made after exchanging share of property ownership?

thor

I was wondering roughly how much tax would be liable for the following scenario.

House A owned equally by person 1 and person 2 after they inherited it with person 1 living in it.

House B again owned equally by person 1 and person 2 after they bought it for £35K in 1998 and with person 2 living in it.

Both houses are worth about £120000 now.

So if they both gave their half of these properties to the one who lives in them, would they need to pay tax even though neither have profited from the exchange given that they owned 2 halves before and afterwards they each own one whole?

Could there be a way of avoiding paying CGT if it was legally documented that neither person made any money?

Inbetweeners

Capital Gains Tax doesn't need to involve any exchange of money. In your example each person is gifting a half share of a property which is not their principal private residence.

What is the relationship between person 1 and 2. What was the value of Property A when inherited.

thor

Inbetweeners said:

Capital Gains Tax doesn't need to involve any exchange of money. In your example each person is gifting a half share of a property which is not their principal private residence.

What is the relationship between person 1 and 2. What was the value of Property A when inherited.

Property A was worth about £100K at the time and person 1 and person 2 are siblings. I get that you may have to pay even if no money changes hand but in this case neither person makes a gain so I was thinking that CGT may not be liable.

thor

[Deleted User] said:

thor said:

I was wondering roughly how much tax would be liable for the following scenario.

House A owned equally by person 1 and person 2 after they inherited it with person 1 living in it.

House B again owned equally by person 1 and person 2 after they bought it for £35K in 1998 and with person 2 living in it.

Both houses are worth about £120000 now.

So if they both gave their half of these properties to the one who lives in them, would they need to pay tax even though neither have profited from the exchange given that they owned 2 halves before and afterwards they each own one whole?

Could there be a way of avoiding paying CGT if it was legally documented that neither person made any money?

There are special rules that deal with this type of situation that can prevent a gain arising.  It's discussed here but they are rarely talked about or used: https://forums.moneysavingexpert.com/discussion/comment/80887156

I can see why these rules are not talked about too much as it is quite dense. I've managed to pick up in the relief section TCGA 1992/S248B

"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"

Doesn't this apply for my example? Both houses are worth the same so there is no gain/loss during the exchange?

Jeremy535897

It's certainly worth arguing that, if your circumstances fit.

Bookworm105

Jeremy535897 said:

It's certainly worth arguing that, if your circumstances fit.

I read it as the transaction would involve "excluded land" which is defined in section 5 as a dwelling house and therefore rollover relief does not apply?
I grant however it is unclear of "excluded land" has to meet all 3 bullet points in section 5 , ie it must involve exchange of main residences, not just a house

Relief is not available to the extent that the acquired interest in land is “excluded land”.

Land is “excluded land” 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 “material time”.

Jeremy535897

Bookworm105 said:

Jeremy535897 said:

It's certainly worth arguing that, if your circumstances fit.

I read it as the transaction would involve "excluded land" which is defined in section 5 as a dwelling house and therefore rollover relief does not apply?
I grant however it is unclear of "excluded land" has to meet all 3 bullet points in section 5 , ie it must involve exchange of main residences, not just a house

Relief is not available to the extent that the acquired interest in land is “excluded land”.

Land is “excluded land” 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 “material time”.

Have you looked at section 248E?