Postby Lambs » Thu Oct 08, 2020 7:13 pm
This is the kind of issue you see once as a mock exam question and perhaps a handful of times thence as a real-life tax adviser (unless, of course, you specialise in land).
In the absence of special rules, SDLT and CGT principles WOULD act to treat as taxable the consideration received, being the balance of value in each property.
Fortunately, there are special rules, as M has outlined.
Further guidance may be found -
For CGT:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg73000p
For SDLT:
https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm04030
A word of warning insofar as the SDLT manual is concerned: DO NOT STRAY FROM THE PATH. Or at least to the few pages BEFORE SDLTM04030, which deal with exchanges in land. You might think this is more applicable than "partitioning", but the earlier pages are to deal with transactions involving exchanges of interests in land between parties who are NOT co-owners of the land interests in question, whereas SDLTM04030 is actually what you need (although HMRC could have done a MUCH better job of explaining it / distinguishing it: I do find myself wondering how many tax advisers or adventurous taxpayers will have made it to SDLTM4020 and looked no further, thinking SDLT was actually due).
M's memory gets an A*
The only thing I would add is that there may be complications if either property is subject to a mortgage, since a party agreeing to take on more debt is usually treated as consideration in its own right.
Perhaps M's memory would be so kind as to confirm whether or not this is an issue.
Kind regards,
Lambs
