My VIP Tax Team question of the week: Unconditional contract for capital gains purposes

“My client has entered in to a contract with a third-party company to sell a piece of land that they own. This land is currently just a field containing no structures. One of the conditions of the contract for sale is that my client must first finish obtaining planning permission for development on the site. When planning permission is granted, completion will occur, and my client will be paid £250,000.

If planning permission is not obtained, then the contract will be voided.
The contract was signed in June 2024 before the rates of CGT were changed on 30 October 2024. What rates of CGT will they have to pay should planning permission be obtained in December 2024?

 

A: The rate of CGT to use will depend on the date of disposal. Where a disposal is made under a contract, this is governed by s28 TCGA 1992.

For an unconditional contract, the date of the disposal will be the date the parties entered in the contract. However, for a conditional contract, the date of the disposal will be determined by the date the conditions are satisfied.

In both cases, If the contract never completes, then there is no need to work out the date of disposal, as there is no disposal for CGT.

HMRC has a page describing the date of disposal for contracts and other disposal at CG14250.

Therefore, we need to establish if the obtaining of the planning permission makes the contract conditional or not. Firstly, advice should be sought from the legal advisor who will be able to confirm if the contract is conditional under contract law and what type of condition it is. HMRC state at CG14261:

A contract will be “conditional” where there is a condition precedent ([Eastham v Leigh, Lyon v Pettigrew]). This is a question of contract law, rather than tax law.

Under the law of England and Wales, broadly, there will be a condition precedent in a situation where the contract is only legally binding on the parties once that condition is fulfilled. This is different from obligations that the parties need to fulfil in accordance with the contract, before it completes (sometimes called “conditions subsequent”).

Assuming the contract is drafted accordingly, the obtaining of planning permission is likely to be such a contingent condition precedent to performance as neither party to the contract is bound to make a disposal or acquisition unless and until the planning permission is obtained.

If you have access to the Croner-I library, there is some discussion and examples of conditions within contracts at: https://library.croneri.co.uk/cch_uk/btr/515-500

Therefore, as the planning permission is obtained in December 2024, the rates of CGT payable by your client will be 18% on gains within the client’s basic rate band and 24% above that.

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VIP Tax Adviser
0844 892 2470


Amaira has been working in boutique tax planning and advisory firms since 2010, gaining experience in a variety of tax sectors relating to owner managed business and individuals before joining Croneri in 2018. Amaira has a legal background, having completed the Bar Vocational Course, has completed her ATT examinations and is now a member of the CIOT. She advises on a broad range of direct taxes and SDLT.

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