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CG14261 - Computation: date of disposal: disposals under contract

It is important to identify whether a contract is in place when an asset is disposed of as this will influence the date of disposal for capital gains purposes. See CG14250 for general information about the determining the date of disposal.

What is a contract?

There is no definition of a contract in the capital gains legislation. The position will follow the applicable law.

Under English and Welsh law, a contract does not usually need to be made in writing by any formal document or phrases. One exception to this is that a contract for the disposal of an interest in land in England and Wales must be made in writing, see CG70280.

In cases of serious doubt, or if the law of another country applies, seek support following the process outlined on the Contacting Us page on the Capital Gains Network SharePoint site.

Oral contracts

An oral contract may not be enforceable, but this does not prevent it from being a contract of disposal for capital gains purposes. There is authority for this in the case of Thompson v Salah 7 TC 559. The principles of this case apply for capital gains purposes although it concerned Case VII Schedule D (short term gains).

How does s28 apply to contracts?

Where an asset is disposed of under contract, s28 fixes the time of disposal and acquisition for many (although not all) capital gains purposes. See below for interactions between s28 and other capital gains rules where timing is important.

S28 provides that the time of disposal and acquisition is the time the contract is made, or, if the contract is conditional, the time when the conditions are satisfied. See below for more information on what makes a contract “conditional”.

S28 can only apply once an actual disposal or deemed disposal has taken place. See CG12700P for guidance on disposals.

Example

On 12 May 2023, Mr Blue entered into an unconditional contract to sell a painting to his sister. Mr Blue disposed of the painting to his sister on 1 September 2024.

Because that disposal took place under contract, s28 applies. So although the actual disposal took place in on 1 September 2024, s28 provides that any chargeable gain is treated as arising on 12 May 2023 (the date the contract was made).

On 5 September 2023, Mr Blue entered into another unconditional contract to sell another painting. However, on 6 October 2023, both parties agreed to terminate the contract and not go ahead with the sale. Although there was a contract for sale, there was no disposal and so s28 does not come into operation.

Interaction of s28 and other rules

As set out in CG14250, there are various capital gains rules for which timing is important, for example to determine the availability of a relief or period of ownership of an asset. Where there is a disposal under contract, you may need to look at different dates for different purposes.

The chargeable period will always follow the date given by s28 (unless overridden by other statute, see CG14250 for specific statutory rules for dates of disposal).

There are however capital gains purposes for which we look to the time of actual disposal or acquisition, such as, for example, the period of ownership for private residence relief (see CG64923).

Several different interactions between s28 and other rules can be found at the CG manual pages as indicated below.

Conditional and unconditional contracts

A contract will be “conditional” where there is a condition precedent ([Eastham v Leigh, Lyon v Pettigrew]). This is a question of contract law, rather than tax law.

Under the law of England and Wales, broadly, there will be a condition precedent in a situation where the contract is only legally binding on the parties once that condition is fulfilled. This is different from obligations that the parties need to fulfil in accordance with the contract, before it completes (sometimes called “conditions subsequent”).

In cases of serious doubt, or if the law of another country applies, seek support following the process outlined on the Contacting Us page on the Capital Gains Network SharePoint site.