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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Land: development value: example

An individual acquired a piece of land consisting of 10 acres on 6 April 1955 at a cost of £5,000.
 

  • On 6 April 1975, the individual disposed of 5 acres of the land for £10,000.

The value of the remaining 5 acres at that date was also £10,000. No election for valuation at 6 April 1965 was made and the land did not have development value at the date on which the 5 acres were disposed of. The gain arising on this part-disposal is calculated as follows.

  Disposal proceeds   £10,000
       
Less Cost £5,000 x               _\_\\_\_£10,000\_\___  
                              £10,000 + £10,000 (£2,500)      
    Gain    £7,500

 

The chargeable gain is then arrived at by time-apportionment as follows

7,500  x  10 years  = £3,750

                  20 years

  • in 1978, the individual obtained planning permission to develop the remaining 5 acres and, on 6 April 1979 disposed of those 5 acres to a property developer for £50,000. It was accepted that the land had development value at that time.

The value of the original 10 acres at 6 April 1965 was agreed to be £8,000.

The gain arising on this disposal is calculated as follows.

 

  Disposal proceeds   £50,000
       
Less Cost £8,000 x               5  
                               10 (£4,000)      
    Chargeable gain   £46,000

 

  • the gain on the first disposal in 1975 now needs to be recomputed using the 6 April 1965 value of the land.

 

  Disposal proceeds   £11,000
       
Less Cost £8,000 x               5  
                               10 (£4,000)      
    Chargeable gain     £6,000

A further assessment for 1974-75 in the figure of £2,250 is required.

 

  • if the facts had been the same as above, but the second disposal had occurred in 1981-82 or later, it would not have been possible to raise the further assessment since TCGA92/SCH2/PARA9 does not contain any provisions which would extend the normal assessing time limits.