Capital Gains Tax on Compulsory Purchase Order Property

It is not very often we are left ‘stumped’ but a recent discussion with a client did exactly that.

The client owns an investment property that is now the subject of a Compulsory Purchase Order (CPO).  The property has been let for many years as a buy-to-let investment but equally the same would apply to an additional (2^nd home) not used for buy-to-let or furnished holiday let purposes.

When you sell a residential investment property, you are usually subject to capital gains tax on the sale, payable within 60 days of the sale.

What about when it is a forced sale under a Compulsory Purchase Order e.g., to knock it down and build apartments or other infrastructure projects such as roads, railways, motorways etc?  Clearly, you may not want to sell the property and then be forced to pay capital gains tax if there is a taxable gain.

Rollover Relief

For the sale of business assets and land or furnished holidays lets (currently classed as a business asset), HMRC allows rollover relief.

• Rollover relief means that if you use the ‘business‘ property sale proceeds to reinvest in another ‘business’ asset within 3 years then you can defer capital gains tax onto the new business asset. 
• Your ‘business’ must have used the old asset in your ‘trade’ but must continue trading using the new business asset to qualify for rollover relief.
• Rollover relief is not available for residential buy to let property on sale.

HMRC Concession on Compulsory Purchase Orders

HMRC recognises that a forced sale via a CPO on a residential let property creating a capital gains liability when you may not want to sell is unfair.

• By concession, HMRC will allow Capital Gains Tax Rollover Relief on residential let property when the sale is forced by a CPO and another one acquired.
• This is provided the property owner did not make anyone aware they may be interested in selling the initial property beforehand e.g., advertising the dwelling property for sale or marketing it via estate agents or online agents.
• Also, provided the new dwelling home does not become the owners only/main residence/principal private residence within 6 years of the purchase.

Read HMRC's CGT Manual

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