Introduction and computation: occasions of charge: assets lost/destroyed/negligible value: involuntary transfers
TCGA92/S24(1) - Whether an involuntary transfer will constitute a disposal
These instructions look at the Capital Gains Tax position when someone has an asset taken from them without their consent. This could be by way of confiscation, compulsory acquisition, theft etc.
Involuntary transfers are disposals for Capital Gains Tax purposes if
- the original owner’s title to the asset passes to a new owner, for example, a local authority after a compulsory purchase, see CG60660 and CG72100+
- the original owner’s title comes to an end under a particular law or statute, see, for example, St. Marylebone Property Company v Fairweather below.
Involuntary transfers are not disposals if
- the original owner retains their title to the asset, but loses possession
- the new owner acquires a new and separate title.
St. Marylebone Property Company v Fairweather
It is always important to ascertain the correct legal position. In St. Marylebone Property Company v Fairweather ( AC 510), it was held that a squatter had obtained a new and separate title under the Statute of Limitations and had not taken a ‘Parliamentary conveyance’ from the original owner. The operation of the Statute of Limitations was said to be merely negative. It destroyed the leaseholder’s title to the land but did not vest it in the squatter. Therefore this was an involuntary transfer which was not a natural disposal but, nevertheless, the asset was ‘entirely lost’.
A leaseholder in this situation could claim relief for the loss of their interest in the asset, section 24(1) (see CG13120).
Theft of property
Theft is defined as dishonestly appropriating property belonging to someone else with the intention of permanently depriving them of it. As such, the theft of an asset is not the ‘entire loss’ of that asset. After the theft, and although the victim has given up actual possession of the asset, they normally retain the right to recover possession.
The thief has a new and separate title by virtue of the theft and their subsequent possession but the original owner has a better title. Therefore, as the original owner’s title has not been completely lost or destroyed, section 24(1) (see CG13120) will not apply.
However, the original owner’s interest in the asset may have become of negligible value, section 24(2) (see CG13125), even though the value of the asset itself may be unchanged.
If the asset is found by the police and returned to the rightful owner we take the view that the beneficial interest in the asset was not lost during the period when possession was lost. The return of the stolen asset is clearly not ‘compensation’ because it is the asset itself, so that TCGA92/S22 (see CG12940+) has no effect. For Capital Gains Tax purposes we would not take a charge.
If, however, there is no likelihood that the asset will be recovered, a negligible value claim, section 24(2) would be competent. This would not apply where the loss has been covered by insurance etc. In those circumstances we would regard the charge under section 22(1) as overriding the claim under section 24(2).
Where a particular Government introduced a law or statute with a view to persecuting a particular religious or ethnic group, it is unclear whether there was a disposal. In many cases, the original owner(s) retained their title but were unable to enforce this. However, their title had clearly been supplanted by the title granted under the particular law.
Capital Gains Technical Group will be happy to look at any substantial case involving this type of situation which cannot otherwise be resolved.
Many cases where this type of confiscation occurred will now be covered by the increasing number of compensation arrangements being introduced. CG13055 onwards tell you about these.