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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Contingent liabilities: what is a contingent liability?


In the case of Randall v Plumb Mr Randall granted a gravel company an option to purchase certain land for £100,000. The company paid Mr Randall 25,000 for the grant of the option but this was repayable after 20 years if the company had not received planning permission. Mr Randall also agreed not to make or concur in any separate application for planning permission on the land. The High Court held that consideration for the disposal was not £25,000 but £25,000 less the value of the possibility that the money may have to be repaid.

This approach to contingent liabilities has two consequences

  • By including an unlikely contingent liability in a sale contract the disposal proceeds brought into the Capital Gains Tax computation can be artificially reduced. For example, a professional person can sell a practice and knowing they had no intention of opening another practice in the area enter into a covenant not to do so.
  • There is no mechanism for adjusting the Capital Gains Tax computation if the valuation of the contingency turns out to be wrong.