Where land transactions are entered into that involve an exchange of major interests in land (traditionally known as ‘excambions’), they are treated as two separate land transactions which are not linked for LBTT purposes (see LBTT2008). The expression ‘major interest in land’ means the interest of an owner of land or the right of a tenant in or over property subject to a lease.
Each land transaction requires a LBTT return to be made to us unless it is not notifiable (see LBTT4003).
Two parties might enter into two or more land transactions in consideration for each other. A might accept a conveyance from B of an area of land or a building as all or part of the consideration for disposing to B an area of land or building.
Determining the chargeable consideration for transactions involving exchanges of interests in land
The chargeable consideration rules below regarding exchanges of interests in land:
- do not apply where the rule involving arrangements with certain public or education bodies applies – see LBTT2015; and
- are subject to the rule regarding the division or partition of a chargeable interest to which parties are jointly entitled - see LBTT2010.
In the rules below:
- ‘relevant acquisition’ means a land transaction which is entered into by a person as a buyer (alone or jointly) wholly or partly in consideration of one or more other land transactions (a ‘relevant disposal’) being entered into by that person (alone or jointly) as seller; and
- ‘relevant transaction’ means any transaction which is either a relevant acquisition or a relevant disposal.
The rules that apply depend on whether the subject-matter of any of the relevant transactions is or is not a major interest in land.
If the subject-matter of any of the relevant transactions is a major interest in land then:
- where a single relevant acquisition is made, the chargeable consideration for the acquisition is the greater of:
- the market value (see LBTT2016) of the subject-matter of the acquisition (or, if the acquisition is the grant of a lease, the rent); or
- the amount which would, ignoring this rule, be the chargeable consideration for the acquisition.
- where two or more relevant acquisitions are made, the chargeable consideration for each relevant acquisition is the greater of:
- the market value of the subject-matter of that acquisition (or, if the acquisition is the grant of a lease, the rent); or
- the amount which would, ignoring this rule, be the chargeable consideration for that acquisition.
If the subject-matter of none of the relevant transactions is a major interest in land then:
- where a single relevant acquisition is made in consideration of one or more relevant disposals, the chargeable consideration for the acquisition is the amount or value of any chargeable consideration other than the disposal or disposals that are given for the acquisition; or
- where two or more relevant acquisitions are made in consideration of one or more relevant disposals, the chargeable consideration for each relevant acquisition is the appropriate proportion (see below) of the amount or value of any chargeable consideration other than the disposal or disposals that are given for the acquisitions.
The ‘appropriate proportion’ is:
MV
TMV
Where:
- MV is the market value (see LBTT2016) of the subject-matter of the acquisition for which the chargeable consideration is being determined; and
- TMV is the total market value of the subject-matter of all the relevant acquisitions.
LBTT(S)A 2013 schedule 2 paragraph 5
Worked examples
Red gives a £500,000 home to Blue in exchange for Blue’s £300,000 flat. Blue must pay LBTT on £500,000, the market value of the interest acquired as this is greater than the consideration Blue gave which was their £300,000 property.
Red must pay LBTT on the greater of the market value of the interest acquired (£300,000) and the chargeable consideration given. As Red has given a £500,000 property in exchange for the property acquired, the consideration is £500,000. So, Red also pays LBTT on £500,000.
As this is a purely commercial transaction, there is no gift element.
Green and Yellow decide to exchange their homes.
They agree that Green’s home is valued at £375,000 and Yellow’s home is valued at £400,000. They further agree that Green will pay £25,000 to Yellow as well.
Green pays tax on the chargeable consideration of £400,000 since this is both the value of the interest Green acquires and the amount of consideration Green gives to acquire it.
The chargeable consideration is £375,000 for Yellow’s acquisition - this is equal to both the value of the interest Yellow acquired and the amount of apportioned consideration Yellow gave to acquire it.
Green’s LBTT return is based on £400,000 whilst Yellow’s is £375,000.
Red, who is one of Blue’s parents, gives a £500,000 home to Blue, in exchange for Blue’s £300,000 flat. Blue must pay LBTT on £500,000, the market value of the interest acquired as this is greater than the consideration Blue gave, which was their flat valued at £300,000.
Red must pay LBTT on the greater of the market value of the interest acquired (£300,000) and the chargeable consideration given. Red has given a £500,000 property, £200,000 of which was a gift, the remaining £300,000 was in exchange for the property acquired. The consideration must be apportioned on a just and reasonable basis between the chargeable consideration given for the flat and the element gifted to Blue.
The just and reasonable apportionment results in the chargeable consideration given being £300,000. Red pays LBTT on £300,000.
Ref ID
LBTT5002
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