HMRC: small receipts come off rebased 1965 value in full

HMRC's Capital Gains Manual now spells out how the small-receipts expenditure rules apply to assets held since before capital gains tax began. A new "Valuations at 6 April 1965" section in CG12820 provides that where a part-disposal carries an election under paragraph 17 of Schedule 2 to the Taxation of Chargeable Gains Act 1992, the allowable cost is the market value of the asset on the deemed reacquisition at 6 April 1965GOV. If that new allowable cost is not less than the small receipt, the receipt is deducted in full from the new costGOV.

The section sits inside the page dealing with receipts that exceed allowable expenditure under sections 23(2), 122(4), 133(4) and 244(2) of the 1992 Act. Those provisions counteract the possibility that repeated applications of the small-receipts rules drive allowable expenditure into a negative quantity. The small receipts in question are small compensation receipts under section 23(1)(b) and (c), small capital distributions in respect of shares under section 122(2), small cash premiums on conversions of British Government and other securities under section 133, the small consideration for a disposal of land within section 242, and the consideration for disposing of a small piece of land within section 243.

The page restates the statutory safety net: the expenditure rules do not apply if, immediately before the part-disposal, there is no remaining allowable expenditure, or that expenditure is less than the small receipt. Instead the receipt is treated as being for a part-disposal. Where some allowable expenditure remains, the taxpayer may elect to set the whole of it against the consideration received in computing the gain, leaving none for a later disposal or part-disposal, which avoids a succession of apportionments of diminishing small amounts of expenditure.

The new 1965-valuation passage applies that machinery to the rebased cost. It confirms two points advisers should note. First, the comparison is between the rebased 1965 market value and the small receipt: only where the new cost covers the receipt does the full deduction operateGOV. Second, even though there is then no longer a part-disposal, the paragraph 17 election remains binding on any future disposal of the assetGOV, with the manual pointing to CG15532 for that consequence.

The practical audience for this clarification is narrow. HMRC's guidance on assets held on 6 April 1965 notes that, for capital gains tax, the 31 March 1982 value applies to disposals from 6 April 2008, so the 1965 rules are no longer relevant; they can still matter for corporation tax, for example where a company that has held an asset since 1965 and has not made a rebasing election under section 35(5) disposes of it and the kink-test computation is affected. Company advisers dealing with small receipts on such long-held assets should test the paragraph 17 election route and record the election, since it fixes the treatment of later disposalsGOV.

Legal basis: TCGA 1992 ss 23(2), 122(4), 133(4), 244(2) and Sch 2 para 17, as explained in HMRC Capital Gains Manual pages CG12820, CG12822 and CG15500+.