Spliting Jointly Owned Rental Properties

A Tax-Efficient Exit Strategy for Property Co-Owners

When two or more people jointly own rental properties, it’s not uncommon for them to eventually want to part ways. Whether it’s due to changes in investment goals or personal circumstances, dividing a property portfolio fairly can feel daunting—especially when potential tax liabilities loom large.

But here’s the good news: with proper planning and structure, it is possible to split the portfolio without automatically triggering large Capital Gains Tax (CGT) or Stamp Duty Land Tax (SDLT) bills.

Scenario: Splitting a Buy-to-Let Portfolio

Let’s say two brothers jointly own several buy-to-let properties in Manchester. They’ve decided to go their separate ways, and instead of selling everything, they agree that each will take full ownership of half the properties.

At first glance, it might seem that this would result in:

• Capital Gains Tax for disposing of interests in property, and
• Stamp Duty Land Tax is used to acquire interests from each other.

But that’s not necessarily the case.

Capital Gains Tax: Why You Might Not Owe Anything (For Now)

Normally, when someone transfers ownership of property—even between co-owners—it’s treated as a disposal, which can trigger CGT if the property has increased in value.

However, when two parties exchange interests in properties they already own together, there is a form of tax relief that can apply. This relief effectively defers the CGT that would otherwise be due at the point of exchange. For this to happen, a few conditions must be met:

• The exchange must be between co-owners of the jointly held property.
• Each party must end up owning part or all of the property exclusively as a result of the swap.
• There must be no additional cash payments made to equalise values, or only minimal ones.

In this situation, the transaction is not treated as a full disposal for CGT purposes. The gain isn’t erased—it’s postponed until the new owner eventually sells the property.

Stamp Duty Land Tax: Will It Apply?

If each party gives up a share in one property and gains full control of another, you might expect SDLT to apply because it usually does when the property is transferred. But when a property is partitioned between co-owners—meaning they each take full ownership of different parts—SDLT may not be due, provided:

• The transfer is a straight swap of property interests.
• No money changes hands to balance out any difference in value.

If equalisation payments are made (for instance, one property is worth more and one brother pays the other to even things out), the payment might be treated as “chargeable consideration” for SDLT purposes. In that case, the tax could apply to that amount.

A Practical Example: Imagine two brothers who own four rental properties together. They decide that each will take two and walk away.

• If the properties are roughly equal in value and no cash changes hands, each can take full ownership of two properties without triggering CGT or SDLT at the time of the split.
• If the properties vary in value, and one pays the other to balance the books, SDLT may apply to that payment. Also, CGT relief may still apply, but it might be only partial.

This is why valuation is crucial before making any decisions.

Key Tips for Property Co-Owners Looking to Split Assets

1. Agree on clear valuations: Have all properties independently valued to assess whether they can be split equally without triggering extra payments.
2. Avoid cash equalisation if possible: Structuring the deal as a straight asset swap helps avoid SDLT and ensures full CGT deferral.
3. Keep it fair but simple: Try to allocate properties so that each co-owner ends up with assets of similar value, minimising complications.
4. Document everything: A formal deed of partition and legal agreements are essential for ensuring the transaction is executed properly.
5. Plan for future tax: Even if CGT is deferred now, it will eventually become payable when the property is sold. Know your cost base and holding period.

A Tax-Smart Exit Strategy Is Possible

If you want to split a property portfolio between co-owners, you can do it without facing a big tax bill—if you plan it well. With the right approach, you can delay capital gains tax and avoid stamp duty land tax. This way, everyone can get their share of the assets without any immediate tax costs.

This is a smart option, but be careful. Consult a tax advisor or property accountant before making any final decisions to ensure you take full advantage of the available benefits.

Are you thinking of splitting your property portfolio?

At Tax Accountant, we help property owners navigate ownership changes, CGT reliefs, SDLT strategies, and much more. Whether you’re dividing assets with family or restructuring an investment, we’ll help you do it tax-efficiently. Book a consultation today to protect your portfolio and your profit.