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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Land: disposals: unascertainable deferred consideration: example where part charged as income

Example where ICTA88/S776 applies

Mr S sells a piece of land to a developer in September 2002. He receives £1m on completion of the contract and the right to a further sum dependent on the profits made when the developer sells the land after redevelopment.

Following redevelopment, Mr S receives a further £1.5m in April 2006. It is accepted that ICTA88/S776 applies and that ‘the first intention date’ was the date of contract in September 2002.

The Valuation Office Agency states that the value of the land in September 2002 was £1.4m. This figure is accepted by Mr S as being the value of the land when the intention to develop if was first formed.

The amount chargeable under Section 776 is

£2.5m (the total consideration)
- £1.4m (the Section 776(7) value)

This amount will not be chargeable to Capital Gains Tax by virtue of TCGA92/S37 (1).

The balance of the total consideration, that is £1.4m, should be treated as the consideration received for the disposal of the land in September 2002.