Our client owned a plot of land comprising both residential and commercial property. Due to the development of rail networks across the country, the land and property held by our client began to be acquired through a Compulsory Purchase Order (“CPO”).
A General Vesting Declaration (“GVD”) was made pursuant to the Crossrail Act 2008. Consequently, the legal title to the land vested away from our client by virtue of the GVD.
Consideration was then paid to our client in respect of the property disposal. The consideration was split into a variety of categories and paid to our client at different points in time.
After taking into account the relevant deductible costs and expenditure from the total proceeds, our client was left with a substantial taxable gain in respect of which CGT was due at 20%.
We were instructed to provide tax advice on the transaction. In particular, we were asked to advise on the capital gains tax treatment of the disposal. We were also asked to advise on ways in which the gain might be mitigated or deferred. Also to advise on the reporting / disclosure requirements to HMRC.
In summary, a taxable gain subject to CGT had arisen at an historic date. It was clear that rollover relief was available in respect of the disposal.
(In respect of a CPO rollover relief is available to defer the tax payable to HMRC providing certain criteria are met).
Rollover relief provides relief to a taxpayer who realises a capital gain on certain qualifying disposals, by deferring the gain to a later period in time. Specifically, the deferred gain reduces the base cost of the new asset purchased. Consequently, is only chargeable on the disposal of the newly acquired asset. Note that this is not a CGT exemption, it simply defers the gain to a later period.
In relation to a CPO, rollover relief is available where land (‘old land’) is acquired by an authority with existing CPO powers. This is provided that, the vendor did not make known his ‘willingness’ to dispose of the property known. Also provided that all or part of the consideration is used to acquire ‘new land’ which is not disqualifying.
The client was advised that in order to defer part of, or all of the gain, replacement land must be acquired within a set time period from the date of disposal. The extent to which the gain could be deferred depended on the amount of proceeds reinvested in new land. In principal, any proceeds not reinvested would be immediately subject to CGT.
Our client was advised to acquire ‘new land’ in order to defer the gain. Provided this was in line with their commercial objectives. Any gain which still need to be paid was reported to HMRC.
If you have any queries about this Compulsory Purchase Order case study, or CGT in general, please do not hesitate to get in touch.
