Capital Gains Tax – Compulsory Purchase – Section 542(1)(d) Tax Consolidation Act 1997

Disposals by farmers of land for road building - Clarification of rate of CGT

Section 542(1)(d) Tax Consolidation Act deals with chargeable gains on the disposal of land by farmers, for the purpose of building, widening, or extending roads, to an authority exercising compulsory purchase powers. (The land must have been used for farming immediately before the disposal.) It provides that the chargeable gain on such a disposal shall be deemed to accrue in the year of assessment in which the compensation is received.

The appropriate rate of charge is, however, governed by the date of disposal. The standard rule for disposals under compulsory purchase powers is that the date of disposal is the earlier of the date the authority enters on the land, or the compensation is agreed or otherwise determined (section 542(1)(c) Tax Consolidation Act 1997).

If, for example, the authority entered on land (before compensation was agreed) during the period when the 20% rate of CGT was in force, but compensation is received now (when the rate is 25%), it is the 20% rate that is applicable.

Rates of CGT are set out beneath –