Do you have to pay capital gains tax on a compulsory purchase?

Hi Tony,

Good question and I didn’t know, but after research I think your accountant is on the right lines:

“The receipt of compensation on the compulsory purchase of land is treated as a disposal of the asset and is chargeable to capital gains tax.

As with the compensation arising on the asset derived from the land, there is ability to rollover the capital gain that arises on the disposal of the land.

The main provisions to rollover are found at s247 TCGA 1992.

The relief is only available on:

A compulsory purchase by an authority that has compulsory powers i.e. local authorities;

You have not tried to sell the property before the compulsory purchase. This includes, no advertising of the land for sale or show of willingness to sell to the authorities;

The compensation received is used to purchase new land. This land must not be your residence that would apply for Principal Private Residence exemption within the first 6 years.”

We will be in a similar position in a few years time on a flat that we let out. I discovered that if the proceeds are re-invested into another property to let then we can apply for roll-over relief, as long as the property is purchased one year before or 3 years after the CPO. This article is old but may help: http://www.taxation.co.uk/taxation/articles/2006/09/07/4364/looking-relief

Yes you will have to pay capital gains tax if the property was let, but if it was your own main residence then you don;t.
If the property was let and you buy another property with the money you got from the CPO, I think it’s within a year or eighteen months then you can claim back the tax you have paid!

thanks everyone for the advice