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Under a Statement of Practice, announced in the Board's Press Release of 22 April 1971, the taxpayer may have the gain computed as if the part disposed of was a completely separate asset, ie the "separate asset basis". It is then only necessary to determine a notional acquisition cost for that asset and deduct that from the proceeds of the disposal. This will usually involve the DV in providing a valuation of the property disposed of as at the date of acquisition of the whole asset. The separate asset basis can have the advantage of avoiding the need to value a substantial retained asset, ie where the part disposed of is a small part of the original whole. It is important to note that the taxpayer cannot be obliged to accept a "separate asset basis", only the part disposal formula contained in s.42 TCGA 1992.
Set out below is the substance of the Press Release.
- To save work for taxpayers and their advisers where part of an estate is disposed of (eg on the sale of a field) the Board of Inland Revenue will accept that the cost of the part can be calculated on the alternative basis set out in this note instead of under the general rule which requires the unsold part to be valued in order to apportion the total cost of the estate. Instructions about the alternative basis are being issued to Inspectors of Taxes who will be glad to give information about its application to particular cases.
- Under the alternative basis the part disposed of will be treated as a separate asset and any fair and reasonable method of apportioning part of the total cost to it will be accepted - eg a reasonable valuation of that part at the acquisition date. Where the market value at 6 April 1965 is to be taken as the cost, a reasonable valuation of the part at that date will similarly be accepted. (Similar constraints will apply where a 31 March 1982 base date is appropriate).
- The cost of the part disposed of will be deducted from the total cost of the estate (or the balance of total cost) to determine the cost of the remainder of the estate - thus the total of the separate amounts adopted for the parts will not exceed the total cost. The cost attributed to each part must also be realistic in itself.
- Taxpayers can always require that the general rule should be applied (except in cases already settled on the alternative basis). If they choose the general rule it will normally be necessary to apply this rule to all subsequent disposals out of the estate - but where the general rule has been applied for a part disposal before the introduction of the alternative basis and it produced a result broadly the same as under the alternative basis, the alternative basis may be used for subsequent part disposals out of the estate.
- So long as disposals out of an estate acquired before 6 April 1965 are dealt with (providing the disposal is pre 6 April 1988) on the alternative basis, each part disposal will carry a separate right to elect for acquisition at market value on 6 April 1965. Similarly where part is sold with development value (providing the disposal is pre 6 April 1988) the mandatory valuation at 6 April 1965 (now para 2 sch 9 TCGA 1992) will apply only to that part. Even where the part is to be treated as acquired at market value on 6 April 1965 it will still be necessary to agree how much of the actual cost should be attributed to the part disposed of (providing the disposal is pre 6 April 1988): first, to ensure that any allowable loss does not exceed the actual loss, and second, to produce a balance of total cost for subsequent disposals.
- The alternative basis will not apply to part disposals between 6 April 1967 and 22 July 1970 where development value was involved; and in other cases the Board reserve the right to apply the general rule if they are not satisfied that the apportionments claimed are fair and reasonable.
- Taxpayers who wish to adopt the alternative basis will still be able to claim under existing statutory provisions that certain small disposals out of an estate should be deducted from cost instead of being assessed. The disposal proceeds will then be deducted from the total cost (or balance of total cost available for subsequent disposals.
Amendments to the above have been made to take account of the re-basing provisions introduced in 1988. In cases of doubt or difficulty please request advice, via the RD/CV(S), from CEO.