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HMRC internal manual

Capital Gains Manual

Computation: date of disposal: conditional contracts

It can be difficult to recognise whether a contract is conditional. Many contracts contain conditions which are to be fulfilled. A contract is only conditional within the meaning of TCGA92/S28 if particular conditions have to be satisfied before the contract becomes a binding document. These are called ‘conditions precedent’. When these conditions are met the contract becomes legally binding. At that point the contract has become unconditional. The date on which the conditions are met is the date of disposal.

Other conditions in contracts are called ‘conditions subsequent’. These may require the parties to do various things before completion or may establish how the contract is to be performed. But they do not prevent the contract from being binding with immediate effect. If they are not met the contract remains a binding contract but the vendor or purchaser may be able to sue for breach of contract.

In Lyon v Pettigrew, 58TC452, Walton J said

‘The words ‘contract is conditional’ have traditionally been used to cover really only two types of case. One is a ‘subject to contract’ contract, where there is clearly no contract at all … and the other is where all the liabilities under the contract are conditional upon a certain event.’

He went on to give an example of a conditional contract:

‘It would, for example, be possible for a hotelier to make a booking with a tour operator conditionally upon the next Olympic Games being held in London. Then, until it had been decided that the next Olympic Games were going to be held in London, there would be no effective contract: the whole contract would be conditional, the whole liabilities and duties between the parties would only arise when the condition was fulfilled.’

(There is a useful examination of the meaning of ‘conditional’ in Eastham v Leigh London & Provincial Properties Ltd 46TC687.)