Part disposal of land and capital gains tax

An overview with examples together with consideration of when an s242 can apply

The first consideration is: has a disposal occurred? There is no statutory definition of ‘disposal’, so the word must be given its normal meaning. HMRC’s capital gains tax manual CG 10240 defines a disposal as ‘an occasion when a person sells an asset or gives it away. Tax may also be charged if the legislation specifically provides for a transaction to be treated as though it were a disposal.'

For capital gains tax purposes, the most common way for a person to dispose of an asset is to sell it to another person. However, a gift or an exchange of assets may also constitute a disposal for capital gains tax purposes. The disposal proceeds will be the actual consideration received unless the disposal is not a ‘bargain at arm’s length’, in which case the disposal is deemed to take place at open market value (TCGA 1992, s17(1)(a)).


TCGA 1992 s21 (2) provides that a taxpayer makes a part-disposal when he sells part of an asset or where he disposes of a right or interest in an asset.

To calculate the chargeable gain on a part-disposal, we deduct from the sale proceeds the part of the original cost of the asset by using the fraction:


Where A is the gross disposal proceeds and B is the value of the part retained.

A part-disposal includes a disposal of a physical part of an asset, eg a ten-acre section of a much larger holding of land. It also includes the disposal of a right or interest in an asset, for example where a lease is granted by the freeholder of land.

Please see 'Capital gains tax on property leases'


Paul bought 50 acres of land in 2000 for £100,000. In 2016 he sold 10 acres of the land for £50,000. The value of the remaining land was £350,000.

The capital gain on the part-disposal is calculated as follows:

Proceeds £50,000
Less: cost £100,000 x (£50,000/(£50,000+£350,000)) ie £12,500

Capital gain is £37,500

The base cost of the remaining area of land is the difference between original cost (£100,000) and the amount used as part-disposal (£12,500), ie £87,500.

Small part-disposal of land, not chargeable to capital gains

Where the consideration for a part-disposal of land is ‘small’, the taxpayer may claim that a chargeable gain does not arise and instead treat the proceeds as reducing the original cost of the land (TCGA 1992 s242).

Conditions of s242 claim:

  1. The proceeds must be less than or equal to 20% of the value of the land at the date of disposal.
  2. The proceeds of all land sales in the year must not exceed £20,000.
  3. The transfer is not between spouses/civil partners, or between companies of the same group.
  4. A claim should be made by 31 January following the tax year of the part-disposal.

Effect of s242 claim:

  1. The proceeds received are ignored when considering the capital gains tax for that year; and
  2. The proceeds received reduce the base cost of the land on a future disposal. That means that the taxpayer will have a lower base cost when he sells the rest of the land and a higher capital gain on the subsequent disposal.