558 Part disposals before 6th day of April, 1978

Summary

This section contains special computational rules for the purpose of determining the base cost of the remainder of an asset where there was a part disposal of the asset in the period from 6 April, 1974 to 5 April, 1978 and the remainder of the asset is disposed of on or after 6 April, 1978. In the case of a part disposal of an asset in the period from 6 April, 1974 to 5 April, 1978, the capital gains tax liability would have been determined by reference to cost of acquisition or, in the case of an asset acquired in consequence of a death after 6 April, 1974, market value on 6 April, 1974.

With effect from 6 April, 1978, 2 concepts were introduced into the capital gains tax code for the purposes of determining the base cost of assets. Firstly, any assets held on 6 April, 1974, including assets acquired in consequence of a death before that date (and therefore held by the successor on that date), are to have as their base cost the market value on that date (see section 556(3)). Secondly, if the assets were acquired on a death on or after 6 April, 1974, the base cost is to be the market value at the date of death (see section 573(2)(a)). Section 558 provides for a special rule to avoid the distortion which would arise if the cost of acquisition, including a deceased’s cost of acquisition, were used in relation to part disposals of assets before 6 April, 1978, while in relation to disposals of the remainder of those assets on or after that date a different basis for determining base cost is to be used, namely, market value on 6 April, 1974 or on date of death. The rule is that, in relation to part disposals before 6 April, 1978, there is a notional recomputation of the base cost by reference to market value on 6 April, 1974 or on the date of death, whichever is appropriate. This notional computation does not affect liability to tax on part disposals effected before 6 April, 1978. It is made solely for the purpose of determining the appropriate balance of the base cost which will be used in the computation of the gain or loss on a disposal of the balance of the assets.

Details

(1) The first subsection is concerned with assets held on 6 April, 1974 and applies where there was a part disposal of such an asset by a person in the 4 year period from 6 April, 1974 to 5 April, 1978, and —

• the time apportionment rules (paragraph 18 of Schedule 1 to the Capital Gains Tax Act, 1975) for determining the amount of the chargeable gain, which were based on cost of acquisition, were applied, and
• some part of the asset remained undisposed of on 6 April, 1978.

In any such case, in order to have a uniform basis for determining under section 557 the correct balance of allowable expenditure (before indexation under section 556) in respect of a disposal of the balance of the asset on or after 6 April, 1978, it is to be assumed that time apportionment (which was abolished in respect of disposals on or after 6 April, 1978) did not apply on the earlier disposal. Instead, it is to be assumed that the gain on the earlier disposal had been determined on the basis that the base cost of the asset was equal to the market value on 6 April, 1974.

(2) The second subsection deals solely with assets acquired on a death which occurred on or after 6 April, 1974. It applies where there was a part disposal of such an asset by a personal representative or legatee or successor in the 4 year period from 6 April, 1974 to 5 April, 1978, and —

• the chargeable gain on that disposal had been determined on the basis of the base cost of the asset at a date before the date of death of the deceased person on whose death the asset was acquired,
  [This would be the case where the death occurred on or after 6 April, 1974 and the base cost to the deceased (or to trustees) was used, with time apportionment, or where the death was after 6 April, 1974 and market value as at that date was used because the asset was acquired by the deceased (or trustees) before 6 April, 1974]
  and
• some part of the asset remained undisposed of on 6 April, 1978.

In any such case, the base cost applicable to a disposal on or after 6 April, 1978 is to be determined under section 557 as if the earlier disposal had been governed by section 14(1) or 15(4)(b) of the Capital Gains Tax Act, 1975, as respectively amended by section 6 or 7 of the Capital Gains Tax Act, 1978. In other words it is to be determined as if the asset was acquired at its market value at the date of death of the owner or life tenant.

Relevant Date: Finance Act 2021