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HMRC internal manual

Capital Gains Manual

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Capital Gains Manual: Introduction and computation: occassions of charge: part-disposals: general: what is the asset: part sold fraction of whole: expenditure only allowed once

TCGA92/S21 (2), TCGA92/S38, TCGA92/S42 and TCGA92/S52(1)

For capital gains purposes a ‘disposal’ includes a ‘part- disposal’, which may be the disposal of

  • a physical part of the asset, or
  • an interest or right in or over the whole or part of the asset.

 

It follows that there is a part-disposal of an asset when part of the value of the asset is realised. This can be

  • by the sale of part of the asset, or
  • by creating rights over it,

 

for example, if a lease is granted out of a freehold or a sub-lease is granted out of a lease. There are special rules for the treatment of options, see CG12300+.

What is the asset?

Sometimes you have to decide what is the asset before you can determine whether a disposal is an entire or a part- disposal. The word ‘asset’ is not defined in the TCGA92 and therefore must be given its natural meaning, subject to any inferences which can be drawn from the Act itself.  From TCGA92/S38 and TCGA92/S42 it follows that an ‘asset’ is whatever is covered by a specific item of expenditure on an acquisition, whether made by purchase or otherwise (such expenditure being allowable under Section 38(1) (a), see CG15160.

See, however, CG71850+ as regards the practice under which a part-disposal of land may in certain circumstances, be regarded as a disposal of a separate asset.

Expenditure enhancing the value of an asset allowable under Section 38(1) (b) may alter the character of the asset but does not create a new asset. For example, if an established newsagent purchases an additional paper round and merges it with the main business, this is an addition to existing goodwill, not the acquisition of a separate asset.

Part sold recognisable fraction of whole: approximation

Where the part sold is clearly a recognisable fraction of the whole the allowable expenditure may be divided in accordance with that fraction in order to avoid unnecessary valuation work. This will commonly apply in relation to a part-disposal of shares out of a share pool and CG51622 provides an example of the form of computation which may be used.

The practice in relation to land is explained at CG71850+.

Expenditure only to be allowed once – TCGA92/S52(1)

If the part-disposal is a disposal of an interest in an asset for a limited period, so that at the end of the period the person is able to dispose of the whole unencumbered asset, the cost to be attributed to the final disposal is the residue after the apportionment of allowable expenditure to the first and any subsequent part-disposals.

If at any time between disposals there is any enhancement expenditure allowable under TCGA92/S38 (1)(b), see CG15180+, that expenditure is added to the residue after the last previous part-disposal for the purposes of the next disposal. The result is that a deduction for allowable expenditure is only to be given once although it may be allowed, in part, in more than one computation.