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If a gift of property is made to a non-spouse/civil partner, capital gains tax (CGT) is charged on the donor as if the market value had actually been received.

However, in a situation where joint owners of property wish to become sole owners of part, then provided no money changes hands, a form of ‘reinvestment relief’ can be applied and no CGT charged.

The joint owners are treated as if each had sold their share for its market value and then the proceeds ‘reinvested’ in acquiring the other’s half share.
If the properties are not of equal value or if one of the joint owners pays extra for a higher percentage share, CGT will be charged on the person receiving payment equivalent to the actual amount paid.

Example:
Alan and Brian (who are not connected persons) jointly own two rental properties, Greengables and Whitegables, respectively. Each property was originally inherited at market values of £50,000 each. They decide to exchange their joint interests such that Alan acquires the sole interest in Greengables and Brian secures exclusive title to Whitegables.

At the time of exchange Greengables has a market value of £200,000; Whitegables has a value of £250,000. No cash changes hands, but Brian has obtained the more valuable interest, and therefore greater proceeds, for the disposal of his share.

Cost for future CGT purposes = Cost of original ½ share + deemed cost of ½ share in exchange

Alan’s calculation:    
MV consideration                       £100,000
Less cost                                   £(25,000)
Less ‘reinvestment’                    £(75,000)
Gain                                           NIL
Brian’s calculation:    
MV consideration                       £125,000
Less cost                                   £(25,000)
Less ‘reinvestment’                    £(75,000)
Chargeable Gain on exchange  £25,000
Less annual exemption, if available
Cost for future CGT purposes for both
properties:        £25,000 + £25,000 = £50,000