Claim for small part disposal relief - compulsory purchase

If you are forced to sell your land to a local authority under a compulsory purchase order, you could benefit from an expanded form of small part disposal relief.

Part disposals - generally

When you make a part disposal of land you usually work out the taxble gain by apportioning the base cost of the total holding between the plot sold and the remainder using the formula:

Total allowable expenses x A/(A+B)

where A is the proceeds received for the plot sold, and B is the market value of the remainder.

If the value of the land sold doesn’t exceed 20% of the total value, and the total proceeds of all disposals of land or property in the year do not exceed £20,000, you can make a claim that the disposal is a small part disposal so you can simply deduct the proceeds received from the base cost of the remainder. The tax is therefore deferred until a future sale.

The problem is that £20,000 is a very low figure by modern standards, and will only really apply where a couple of acres are sold out of a bigger holding.

Compulsory sale

The small part disposal rules are extended where you have sold the land as the result of a compulsory purchase order issued by a local authority with the power to use one. In this case, you can claim the small part disposal treatment if the value of the part sold doesn’t exceed 5% of the value of the total. There is no upper cap.

If the proceeds are less than £3,000, the disposal will always qualify as “small”, regardless of the value of the remainder.

Time limit

Claims must be made within two years of the end of the tax year you made the disposal in.