Exchange of interests in property

This guidance note concerns the tax treatment where two or more persons exchange interests in land. Land includes any interest or right over land and so will cover freehold and leasehold interests in land or buildings.

Although this situation is most likely to apply on the breakdown of a marriage (and it is considered in this context in this note), the same treatment applies where exchanges are made between unmarried people, such as siblings or friends.

Under first principles, where interests in land are exchanged by persons other than a married couple / civil partners living together, the transfers would be treated as having been made at market value for capital gains tax (CGT) purposes. This would leave both parties with a CGT liability despite not having received any cash proceeds.

However, there are roll-over relief provisions that allow each person to defer his gain on the disposal of the old interest into the acquisition of the new interest, providing certain conditions are met.

For exchanges prior to 6 April 2010, this relief was given by extra statutory concession (ESC D26). Exchanges which take place on or after 6 April 2010 are covered by the legislative provisions in TCGA 1992, ss 248A-248E.

Stamp duty land tax may be due on the exchange depending on the facts of the situation.