Claim for small part disposal of land

If you sell any part of a plot of land you must work out if you made a capital gain or loss on the transaction. However, if conditions are met, you can make a claim under s.242 Taxation of Chargeable Gains Act 1992 to defer the gain from being taxed.

Disposing of land

Land is a chargeable asset for CGT purposes which means when you sell or transfer it, you need to calculate if you’ve made a gain or a loss. This simply involves deducting the cost (base cost) from the sale proceeds. If the result is a gain it must usually be declared to HMRC and any CGT paid. If a loss has arisen, this too should be reported to HMRC so that you can use it against gains you make in the same or future years.

Part disposals

Because land is a divisible asset, it is possible to sell or transfer part or of it. In this situation you still have to assess the sale for CGT purposes. This means you must work out how much of the base cost should be deducted from the sale proceeds to arrive at the gain or loss. There are special rules for this. However, you can avoid having to make the calculation and pay the tax if the sale or transfer of the land qualifies as “small”.

Small part disposals

A disposal of land qualifies as small if the following conditions are met:

• the consideration received does not exceed more than 20% of the total market value of the land immediately prior to the transfer
• the total consideration for all land disposals in the tax year (including the one being claimed as small) does not exceed £20,000 (disposals classed as a compulsory repurchase by an authority should be disregarded).

Note. The amount of consideration here will be replaced by the market value of the land transferred if the transfer is made at undervalue, i.e. the consideration is less than what the land is worth.

A no gain - no loss transfer, for example a transfer of land from one spouse to the other, cannot qualify as a small part disposal.

Example

Ariana bought land for £50,000 in 1988. In 2022/23 it is worth £200,000, and she sells some of it for £18,000. Instead of working out any capital gain to add to her other gains for the year, Ariana can make a claim to reduce the base cost of the land by £18,000 - leaving £32,000 to deduct from any future disposal of the remainder.

How do you make the claim?

You can make the return on the additional information (white space) of your tax return, or in writing if you don’t complete tax returns or prefer this method. Our template claim letter gives you the wording needed - just fill in the details about your disposal and send it to the tax office that deals with your affairs.

You have to make the claim no later than twelve months from 31 January which follows the end of tax year in which the sale or transfer took place.