Land: part-disposals: general rules
Normal part-disposal rules
In general, the basic provisions regarding part-disposals, see CG12730P, apply to part-disposals of land. However, the nature of land and the interests which can be created over land, give rise to particular difficulties. There are special rules to overcome these difficulties and those rules are covered below.
Special part-disposal rules
A part-disposal of land will commonly take one of two forms:
- The disposal of the owner’s entire interest in an identifiable part of his land. A typical example would be the sale by a farmer of one of his fields.
- The granting of an interest, for example a lease, over the whole or part of the owner’s land. The taxation consequences of the granting of a lease over land are dealt with at CG70800C.
Special rules apply where the part-disposal takes place as the result of a compulsory purchase order. Those rules are explained at CG72200.
Strict legal position
Where there has been a part-disposal of a large holding of land, it can be difficult to identify ‘the asset’ which has been the subject of the part-disposal. The following paragraphs, set out the strict legal position. However, it is often possible to avoid the need to value the whole of the unsold portion of the holding of land, see CG71850.
Single acquisition of land
A single acquisition of land, with or without buildings, whether by purchase, gift or inheritance, should normally be regarded as the acquisition of a single asset for Capital Gains Tax purposes. This principle will apply even if the land acquired includes distinct elements, for example houses, outbuildings or woodlands.
However, there may be evidence which shows that more than one asset was acquired. Examples of such evidence could include:
- the contract for purchase of the land may show separate prices for particular parts of the land;
- the land may have been bought in lots at auction;
- the rent roll of an estate may show separate tenants paying particular rents for particular properties and the price of each property may be calculated accordingly.
Blocks of properties and flat
Where the land acquired is an estate of small, let properties, for example a row of terraced houses, ‘the asset’ should be regarded as a block of convenient size to hold as an investment. However, if the owner wishes to treat each property as a single asset, no objection should be raised.
Single buildings in multiple occupation, such as blocks of flats, should normally be regarded as single assets. However, individual flats may be treated as single assets if similar flats in the same locality have commonly been sold singly.
Estates comprising ‘natural’ units
Where the land comprises a large estate and has been acquired by gift or inheritance, a valuation is often required for IHT purposes. In such cases, the normal practice is to split the estate into ‘natural units’. This practice was supported by the House of Lords in the case of Duke of Buccleuch and another v IRC (an Estate Duty case). Each of these ‘natural units’ should be regarded as a single asset for Capital Gains Tax purposes.
Where a disposal of land includes the whole or part of two or more separate assets, the composite disposal should, if possible, be dealt with in a single computation. Separate computations are however needed if:
- one or more of the assets is a short lease to which the wasting asset rules apply, see CG71140P;
- time-apportionment, see CG15500P, applies to assets included in the disposal which were acquired at different times before 6 April 1965; or
- time-apportionment applies to one or more, but not all, of the assets included in the disposal.
Where separate computations are needed in respect of a composite disposal, the consideration should be apportioned on a just and reasonable basis between the various assets under TCGA92/S52 (4), see CG14771. If agreement on the apportionment cannot be reached, advice should be obtained from the Valuation Office Agency, see CG74150.
Unit of valuation
A disposal of a particular piece of land may involve the part-disposal of a number of separate assets.
Over a period of years, an individual acquires land as follows:
- A farm by inheritance;
- Adjacent land by purchase;
- The house and garden on the farm by gift.
The whole of the farm is used in the individual’s trade as a single unit.
The individual then sells a strip of land to the local authority as part of a road-widening scheme. The strip amounts to half of the land in (2) and part of the garden in (3). In calculating the chargeable gain arising on the disposal of the strip of land, the part-disposal rules should only be applied to (2) and (3). Parts (2) and (3) are separate assets and therefore need to be valued separately.
The land in (1) is also a separate asset, but it does not enter into the computation on this particular occasion.
Election for valuation at 6 April 1965 (companies only)
TCGA92/Sch 2/Para 17 (5)
- a part-disposal of land held at 6 April 1965 occurs after 6 April 1965, and
- the market value of the part remaining has been determined for the purposes of TCGA92/S42, and
- no election has been made for valuation at 6 April 1965, see CG15525,
then no election for valuation at 6 April 1965 can be made on any subsequent disposal or part-disposal of the land.
If, on a part-disposal of land, an election is made for valuation at 6 April 1965, that election is binding on any subsequent disposal, or part-disposal, of the remaining land.
This only applies for companies, as assets held by individuals and trusts are now rebased to 31 March 1982.
Previous part-disposal between 31 March 1982 and 5 April 1988
TCGA92/Sch 3/Para 4 (1)
Where there has been a part-disposal of land between 31 March 1982 and 5 April 1988, there are special rules for determining the allowable expenditure on a later disposal, or part disposal, after 5 April 1988, see CG16940.
Where land is transferred between connected persons, it is quite common for the transfer to be made by two or more steps. A typical example would be the granting of a lease over the land, followed by the transfer of the freehold reversion. The combined market values of the lease and the freehold reversion are usually less than the market value of the unencumbered freehold.
Provided that certain conditions are satisfied, TCGA92/S19 counters this particular kind of avoidance. If you encounter a transfer of this kind, you should refer to the detailed instructions at CG14650 onwards to determine whether Section 19 applies.