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HMRC internal manual

Capital Gains Manual

Land: compulsory purchase of land: special rule for small part-disposals

Special rule for small part-disposals


Where the land acquired under a compulsory purchase order was only part of a holding of land, and certain other conditions are satisfied, see below, the taxpayer can claim that the special rule in TCGA92/S243 should apply. If this treatment is claimed, and if the relevant conditions are satisfied, the consequences are as follows:

  • No gain arises.
  • The compensation received is deducted from the allowable expenditure on the entire holding.

On a later disposal, or part-disposal, of the remainder of the holding, only the reduced expenditure is taken into account, see however CG17360, regarding indexation allowance due on a later disposal.

NOTE. If a taxpayer is within the charge to Capital Gains Tax, neither indexation allowance nor taper relief apply to disposals of assets on or after 6 April 2008. Previously indexation allowance had been frozen at April 1998. Companies and other concerns within the charge to Corporation Tax are not affected by these changes. For indexation allowance see CG17207 and for taper relief see CG17895P.


Conditions for small part-disposal

TCGA92/S243 (1) & (4)

If the special rule for small part-disposals is to apply, all the following conditions must be satisfied:

  • The interest in the land must not be a wasting asset, see CG71141.
  • The market value of the land disposed of must be ‘small’. For the meaning of ‘small’ see CG57836. The comparison to be made is with the market value of the entire holding as defined below.
  • The owner must have taken no steps to make it known, by advertising or otherwise, that he is prepared to sell any part of the holding, but see below.


By advertising or otherwise

Any action taken by the taxpayer to make it known, by advertising or otherwise, that he was prepared to sell the land, is to be disregarded if it occurred more than 3 years before the compulsory acquisition in question.


Definition of holding

TCGA92/S243 (3)

The land disposed of may be part of a large estate. In practice, ‘the holding’ should be taken to be the smallest piece of land which:

  • could have included all the part disposed of under the compulsory purchase order, and
  • which had a separately identifiable cost or deemed cost.


Time limit for claims

TCGA92/S243 (2A)

The time limit for making a claim is:

  • for Capital Gains Tax cases, one year after the 31 January in the year following that in which the disposal took place (in other words, 21 months from the end of the tax year in which the disposal took place)
  • for Corporation Tax cases, 2 years from the end of the accounting period in which the disposal took place.