CG25853 | Arrival in and departure from the UK: establishing the correct time when a gain arises: binding contract pre-dating emigration

Legislation enacted with effect from 27 September 1989 requires all disposals of interests in land in England and Wales to be evidenced in writing if there is to be a valid contract, see CG70280 and CG14263. (This has always been the requirement for land in Scotland.) For disposals after that date an oral contract will not be a valid contract. This means that in cases where the written contract is delayed until after 5 April following departure from the UK you will not be able to establish the existence of a binding agreement preceding the date of sale (see CG25853).

In such circumstances it is still possible for there to be a gain chargeable to tax if any of the following apply:

• TCGA92/S10* (non-resident with United Kingdom branch or agency, see CG25500+)

• TCGA92/S10A* (temporary non-residents, see CG26100+)

• TCGA92/S25 (non-residents: deemed disposals, see CG25530).

• From 6 April 2015 where the disposal is of an interest in UK residential property see CG73700 onwards.

• From 6 April 2019 where it is a direct or indirect disposal of an interest in UK real property see CG73920 onwards.

You should note that the above applies only when the land is situated in England or Wales or Scotland. It does not apply if the land is situated in Northern Ireland or any other country where the legislation does not require the contract to be in writing in order for it to be valid.

*These provisions were re-written for disoposals from 6 April 2019 see CG10150.

A disposal occurs at the earliest time at which there is a binding contract between the parties. Except where there is a statutory requirement for a contract to be in writing if it is to be valid (see CG25853 above), it does not matter whether the contract is oral or written. Thompson v Salah 47TC559 established that a binding oral contract can be just as effective as a written contract in giving rise to a disposal for Capital Gains Tax purposes.

Establishing the existence of a binding contract or agreement, oral or written, in advance of the formal contract presents considerable difficulty, see CG25850 above, and requires the facts of the case to be established in detail. Usually this will involve reviewing the correspondence, notes of meetings, telephone conversations, etc which have taken place between the vendor and purchaser (or more usually their professional representatives) prior to the date of signing the formal documents, to see whether there is evidence of a binding oral agreement or whether the correspondence itself constitutes a binding written agreement. It will not usually be worthwhile to undertake such a detailed review unless there are strong prima facie indications of a pre-emigration binding agreement.

If a binding agreement prior to the date of formal documentation can be established, the date of the earlier agreement is the date of disposal for Capital Gains Tax purposes.