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To save work for taxpayers and their advisers where part of an estate is disposed of (eg, on the sale of a field) the Commissioners for HM Revenue and Customs (HMRC) will accept that the cost of the part can be calculated on the alternative basis set out in this note instead of under the general rule which requires the unsold part to be valued in order to apportion the total cost of the estate. Instructions about the alternative basis have been issued to inspectors who will be glad to give information about its application to particular cases.
Under the alternative basis the part disposed of will be treated as a separate asset and any fair and reasonable method of apportioning part of the total cost to it will be accepted - eg, a reasonable valuation of that part at the acquisition date. Where the market value at 6 April 1965 or 31 March 1982, is to be taken as the cost, a reasonable valuation of the part at that date will similarly be accepted.
The cost of the part disposed of will be deducted from the total cost of the estate (or balance of the total cost) to determine the cost of the remainder of the estate, thus the total of the separate amounts adopted for the parts will not exceed the total cost. The cost attributed to each part must also be realistic in itself.
The taxpayer can always require that the general rule should be applied (except in cases already settled on the alternative basis). If he chooses the general rule it will normally be necessary to apply this rule to all subsequent disposals out of the estate, but where the general rule has been applied for a part disposal before the introduction of the alternative basis and it produced a result broadly the same as under the alternative basis, the alternative basis may be used for subsequent part disposals out of the estate.
So long as disposals out of an estate acquired before 6 April 1965 are dealt with on the alternative basis, each part disposal will carry a separate right to elect for acquisition at market value on 6 April 1965. Similarly where part is sold with development value the mandatory valuation at 6 April 1965 will apply only to that part. Even where the part is to be treated as acquired at market value on 6 April 1965 or 31 March 1982, however, it will still be necessary to agree how much of the actual cost should be attributed to the part disposed of. First, to ensure that any allowable loss does not exceed the actual loss, and, second, to produce a balance of total cost for subsequent disposals.
The alternative basis will not apply to part disposals between 6 April 1967 and 22 July 1970, where development value was involved, and in other cases the Commissioners for HMRC reserve the right to apply the general rule if they are not satisfied that the apportionments claimed are fair and reasonable.
Taxpayers who wish to adopt the alternative basis will still be able to claim under existing statutory provisions that certain small disposals out of an estate should be deducted from cost instead of being assessed. The disposal proceeds will then be deducted from the total cost (or balance of total cost) available for subsequent disposals.