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For information of users:
This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
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CAPITAL GAINS TAX
Joint land owners
It is quite common for land to be held in joint ownership either as 'joint tenants' or as 'tenants in common'. These are legal terms which denote two different types of land ownership. In the first case, each joint owner holds an equal share and they all have a right of survivorship. This means that if any one of the joint tenants dies, the remainder of the property is automatically transferred to the survivors no matter what is stipulated in his Will.
In the second case, ownership does not have to be equal and the deceased's share can be dealt with through his Will and transferred to a person of his choice who is not necessarily already a co-owner. It is possible to sever a joint tenancy in favour of a tenancy in common relatively cheaply. This would not result in any tax implications as the land would still be owned in the same proportions as no-one would be disposing of anything.
In both situations each owns part of the whole, rather than the whole of any specific part. Sometimes landowners wish to address this situation, so that each becomes a sole owner of defined areas of the land. Similarly, there can be a number of separate land holdings jointly owned, with each owner seeking sole ownership of a particular holding. For example, A, B & C jointly own three separate parcels of land and each wishes to wholly own one parcel. In order to achieve this, an exchange of ownerships between the parties is required.
Q. Are there any capital gains tax implications by undertaking such a course of action?
A. Yes there are, since each owner is disposing a part ownership for consideration in the form of another part ownership.
However, under Extra Statutory Concession D26, HMRC has allowed a form a rollover relief to avoid capital gains tax arising on the exchange of joint interests in land. From 1 April 2010, this has now become tax law. Whilst it is possible to defer capital gains tax in full until the land is actually sold, complications arise where dwellings, land of unequal value, and equality money are involved. Additionally, there are Stamp Duty Land Tax implications to consider. Accordingly, landowners looking to rearrange their ownership should seek proper professional advice.
If you require any further information, please contact our Tax Director, Daren Peacock on 01270 623731 or email daren.peacock@affordbond.com.
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