There are many reasons why you may wish to swap your property instead of selling it on the open market for example, it may be more convenient and save costs. People who decide to swap houses may be friends or family or may have used a property exchange website. However, there are tax implications that you should be aware of and potential property-swappers should always seek the advice of an independent tax advisor before committing to this type of transaction.
The tax implication that this article will discuss is the stamp duty liability. Previously, stamp duty would have been charged for the difference in price between the two properties however HMRC now charge stamp duty on the market value of both properties.
The HMRC example is set out below:
‘Ahmed and Katrina decide to exchange their homes. Ahmed’s is valued at £375,000, but Katrina’s is valued at £400,000, so Ahmed gives Katrina £25,000 in cash as well. Ahmed pays tax on chargeable consideration of £400,000 since this is both the value of the interest he acquires and the amount of consideration he gives to acquire it.
It is just and reasonable for Katrina to apportion the £400,000 market value of her house (i.e. the value of what she gave) under paragraph 4 as to £375,000 for the property and £25,000 for the cash received. The chargeable consideration is £375,000 for Katrina’s acquisition – this is equal to both the value of the interest she acquired and the amount of apportioned consideration she gave to acquire it.’*
Contact a member of our Property team to discuss this further.
*https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm04020a