605 Disposals to authority possessing compulsory purchase powers

Summary

This section provides relief from capital gains for a person who makes a disposal, before 4 December 2002, of property to an authority possessing compulsory purchase powers, where the authority has given formal notice of its intention to acquire the property or has actually exercised those powers. Where the whole of the consideration for the disposal is invested in comparable assets, the property in the State being disposed of (the “original assets”) and the property being acquired (the “replacement assets”) are treated as a single asset and a disposal is deemed not to have taken place on the occasion of the acquisition of the property by the authority. As the original assets and the corresponding replacement assets are regarded as the same assets, the owner is treated for indexation purposes as if they continued in uninterrupted ownership of the original assets.

This relief is abolished by section 67 of the Finance Act 2003 for disposals on or after 4 December 2002 except for the situation where replacement assets are acquired before 4 December 2002 but the related original assets have not been disposed of under the compulsory purchase order before that date.

Partial relief applies where part only of the compensation is reinvested. Where the cost of the replacement assets exceeds the compensation received, part of the replacement assets is treated as a new asset for the purposes of indexation.

There are restrictions to the relief in terms of time limits and with regard to which class the original and replacement assets belong.

Subject to certain exceptions, the relief does not apply in the case of disposals of development land (see section 652). The main exception is where the land is being acquired for the purposes of road construction.

Details

Whole (and no more) of consideration reinvested

(1) Where a person disposes of property in the State (the “original assets”) before 4 December 2002, to an authority possessing compulsory purchase powers and claims and proves to the satisfaction of the Revenue Commissioners that —

• the disposal was made because of the exercise by the authority of its compulsory purchase powers or because the authority had given formal notice of its intention to exercise those powers [The latter provision is inserted so that undue delay will not arise in compulsory acquisition cases. If relief were available only where the full process of compulsory acquisition had been completed, undue delay would arise which could jeopardise essential development. Accordingly, proof of the service of formal notice will suffice to allow the grant of the relief.],
• the whole of the consideration (and no more) was applied in acquiring other property (the “replacement assets”), and
• subject to subsection (4A), the original assets and the replacement assets are within one, and the same one, of the classes of assets specified in subsection (5),

then the disposal is not to be treated as a disposal for capital gains tax purposes and the replacement assets and the original assets are to be treated as the same asset with the same base cost and the same date of acquisition as the original assets.

However, if a person has acquired, or entered into an unconditional contract to acquire, replacement assets before 4 December 2002, with the intention of disposing of the related original assets to an authority possessing compulsory purchase powers, but has not disposed of those original assets before 4 December 2002, the person may still be eligible to avail of relief under this section if they dispose of the original assets on or before 31 December 2003. The time limits as set out in subsection (4) must also be complied with.

Amount in excess of consideration reinvested

(2) Where an amount in excess of the consideration is reinvested, the excess is to be treated as consideration for the acquisition of a part of the replacement assets and that amount is treated as having been expended at the time the replacement assets were acquired.

Part only of consideration reinvested

(3) Where part of the consideration received from the authority is not reinvested, the person making the disposal is to be treated as having made a part disposal of the original assets for the amount not reinvested. The replacement asset is treated for the purposes of indexation as having been acquired at the time the original asset was acquired and its base cost is a proportion of the base cost of the original asset.

Time limit for reinvestment and provisional granting of relief

(4) The acquisition, or an unconditional contract for the acquisition, of the replacement assets must be made in the period beginning 12 months before and ending 3 years after the disposal of the original assets. However, the time limits may be extended by the Revenue Commissioners where circumstances warrant such an extension. Relief may be given provisionally where an unconditional contract for the acquisition is entered into and all appropriate adjustments may be made by way of assessments (and without regard to the general time limits for making assessments) or repayments (notwithstanding the general time limit for making a claim for a repayment of tax in section 865) or discharge of tax when all the facts are known. (See section 652(5) regarding development land).

Disposal of let land

(4A) A person who disposes of let land, before 4 December 2002, under a compulsory purchase order for road-building or road-widening comes within the relief if —

• in the 10 years ending with the time the land was first let, the person farmed the land,
• the first letting took place within 5 years ending with the disposal, and
• the proceeds are re-invested in land which the person will farm or in fixed assets of another trade. [Without this subsection only reinvestment in other land for letting would be eligible for relief.]

The classes of assets

(5) To qualify for relief the original assets and the replacement assets must be within the same class.

Class 1 is concerned with the assets of a trade (including farming), broadly, plant or machinery, land and buildings, whereas Class 2 is concerned with land and buildings which are not trading assets, for example, let property. Where land is the stock-in-trade of a dealer in or developer of land, it will not qualify for the relief.

Specifically, Class 2 covers all land or buildings other than land used for the purposes of a trade (and, therefore, within Class 1) and a dwelling house on the disposal of which the owner could claim relief under section 604.

Relevant Date: Finance Act 2021