Chapter 12 Part Disposals

Question 1

Part disposals

Answer 1

A part disposal is when an individual sells part of an asset. To calculate the gain on disposal you use the formula:
A/(A+B) x cost (A is the gross disposal proceeds; B is the value of the part retained)
This achieves the total amount deductible from the sale proceeds.
Interaction with enhancement expenditure – if the enhanced expenditure has increased the value of the whole asset, but only part of the asset is sold, you cannot take a deduction for the whole expenditure, instead you multiply the expenditure by the A/(A+B) fraction.
If the enhancement expenditure has been specifically incurred on the part of the asset actually sold, you can deduct the whole of the enhancement expenditure.
Small part disposals of land – a part disposal of land is small if it meets two conditions:
• The proceeds must be less than or equal to 20% of the value of the land as at the date of disposal
• The total proceeds of all land sales in the year must not exceed £20,000
If it meets the conditions the taxpayer will not pay capital gains tax on these small proceeds in the year of receipt. Effectively the small proceeds are ignored. The small proceeds will thereafter be deducted from the base cost of the land in the event of a future disposal. The taxpayer must make a claim by the first anniversary of 31 January following the tax year (31 January 2022 for 19/20 tax year).