In looking at a compulsory purchase arrangement, ensure that the purchaser concerned actually has the power to acquire the property by compulsion.

In this slightly unusual case, the taxpayer was prevailed upon by the Commission for the New Towns (CNT) to surrender his part interest in an area of land in Milton Keynes. He had originally intended to build a restaurant, and the interest in the land under a restrictive covenant was granted to him by CNT. However, for a variety of reasons, it was determined that the site was not suited to a restaurant and might be better suited to another purpose.

CNT prevailed upon the taxpayer to dismantle the restrictive covenant, and sell the land to a third party who would build a supermarket on it. The taxpayer would be assigned another site by CNT as part of the overall deal.

While the transaction, at first glance, had all the hallmarks of a compulsory acquisition, HMRC disallowed a rollover relief claim. They contended that section 247 TCGA 1992 required that, to be eligible for rollover relief, the proceeds arising had to be from a disposal to the authority with the compulsory powers. Even though the deal was brokered by CNT, it was unclear that CNT itself had the appropriate powers of compulsory acquisition. Further, the purchaser was not CNT, but a third party.

The First Tier Tribunal agreed with HMRC's assertions, and the taxpayer's claim was dismissed.

The full judgment is available at http://www.financeandtaxtribunals.gov.uk/judgmentfiles/j4655/TC00291.doc