ACCA ATX ^UK Syllabus A2. Chargeable gains - Small part disposals of land - Notes ^{1 / 4}

Small part disposals of land

Normally, if you are selling a part of an asset, you will use the formula (a/(a+b)*total cost) to find the allowable cost for your part disposal and then calculate the capital gain.

There is one exception to this part disposal rule and it applies if it is a small part disposal of land.

The main conditions to be met are:

1. The land cannot be a wasting asset

2. Sale proceeds received must not exceed 20% of the market value of the land and the amount of the disposal must not exceed £20,000

3. Total amount of all disposals of land in the year does not exceed £20,000

CGT Implications of a small part disposal

The sale proceeds are deducted from the original cost of the land, and then that reduced cost will be used to calculate the capital gain when the remainder of the land is sold.

Illustration

Jake has a 100 hectare plot of land valued at £1,000,000.

The original cost of the land was £500,000.

He sold 1 hectare for £10,000. This was his only disposal of land in the year.

What capital gain will arise?

• Solution

  The following conditions are satisfied:

  1) The land is not a wasting asset

  2) The sale proceeds are less than 20% of the market value of the holding and less than £20,000

  3) The proceeds from all sales of land in the year are less than £20,000

  Therefore, the sale proceeds will be deducted from the original cost of the land.
  £500,000
  (£10,000)
  £490,000 - is the cost that will be used to calculate the capital gain when the remaining land is sold.