Part Disposal of Development Land

In the case of development land, indexation relief is given only in respect of that part of the amount of the base cost as is equal to the current use value of the land at the date of acquisition. Where the part disposal rules apply the application of the part disposal formula may result in a disproportionate allocation of cost being applied to the part sold. Arising from a recent decision by the Appeal Commissioners, Revenue will accept that the following treatment is to be applied.

Example

An individual acquired 50 acres of land for €100,000 (€2,000 per acre). Some years later, 10 acres are sold for €4m and the value of the remaining 40 acres is €200,000.

In this example €95,238 is clearly greater than the current use value of the land disposed of, at the time of its acquisition (€20,000).

Where land is acquired at current use value and a part of that land is subsequently disposed of as development land, the allowable cost, determined by the part disposal formula, should be viewed as an allocation of the original cost rather than the market value of that part of the land at the time of its acquisition. This original cost represents current use value, at the time of acquisition and any allocation of this amount should consequently be indexed, without restriction.

On a subsequent disposal of the remaining 40 acres, the base cost of the land disposed of, will be the original cost less the base cost allocated to this disposal, i.e., €100,000 - €95,238 = €4,762

Disposal of A Garden

A similar situation arises on the disposal of a site, which was part of the garden of a principal private residence. The chargeable gain arising should be calculated as follows:

Example

An individual disposes of part of his garden for €40,000. The current use value of the site is €2,000. The entire property originally cost €100,000. The market value of the property after the sale of the site is €360,000.

Step 1. Calculate the gain arising using the part disposal rules and ignoring any development land implications.

Step 2. Calculate a notional gain, as if the site was sold for current use value. This is the principal residence relief.

Step 3. Deduct 2 from 1 above. This is the chargeable gain.

As in the previous example, on a subsequent disposal of the remaining property, the base cost of the land disposed of, will be the original cost less the base cost allocated to this disposal.