A landowner approached by a developer for a paddock, a field strip, or the bottom third of a large garden faces a question that catches people out surprisingly often: selling part of an asset while keeping the rest is not taxed the same way as selling the whole thing. It's a part disposal, and the formula that decides how much of your original cost you're allowed to deduct can move the tax bill significantly — in either direction — from what a straightforward sale would suggest.
What makes it a part disposal
Any time you dispose of part of an asset you own and retain the rest, HMRC treats it as a part disposal for Capital Gains Tax. It covers a garden plot sold off the back of a house you're keeping, a strip of a field sold to a developer building an access road, or a paddock carved out of a larger agricultural holding. It does not matter whether the retained land is worth more or less after the sale — the part disposal rules apply as soon as you keep something and sell something from the same original asset.
This is a different calculation to selling a wholly separate asset you happen to own alongside others. If you owned two distinct fields bought under two separate transactions and sold one outright, that would be a normal, full disposal of that field with its own cost attached. A part disposal specifically means splitting one asset's history between what's sold and what's kept.
The default rule: apportioning cost by formula
Where a part disposal doesn't qualify for the small disposals treatment below, the original cost of the whole asset has to be split between the part sold and the part retained. The standard formula deducts:
A ÷ (A + B) × original cost
where A is the proceeds received for the part sold, and B is the market value of the part retained, valued immediately after the sale. The remainder of the original cost — the part not deducted — stays attached to the retained land as its new base cost, to be used whenever that land is eventually sold.
The formula matters because it apportions cost by value, not by area. A landowner who sells a small plot for development while keeping a much larger area of ordinary agricultural land will usually find that plot attracts a disproportionately large share of the original cost, because A (the development-value proceeds) is large relative to B (the market value of the ordinary land retained) — not because the plot is physically a large share of the total acreage. Selling the valuable slice first, in other words, uses up a correspondingly large chunk of base cost, leaving comparatively little cost relief against whatever is sold next.
Small part disposals relief: deferring the gain instead
Where the sale is genuinely small relative to the whole holding, a separate relief lets the proceeds be deducted from the base cost of the land retained instead of triggering an immediate gain calculation at all. Two conditions both need to be met: the proceeds from the disposal must not exceed one-fifth of the market value of the entire holding immediately before the sale, and the total proceeds from all such disposals in the tax year must not exceed £20,000.
Meeting both conditions means no gain is calculated on the sale at the time. Instead, the sale proceeds simply reduce the base cost carried forward on the land you keep. This is a deferral, not an exemption — the gain effectively rolls into whatever is sold next, at a lower base cost than it would otherwise have had, and crystallises then instead. For a landowner selling off small parcels over several years as a wider development comes forward in phases, the relief can be useful for cashflow and administrative simplicity, but it needs planning across the whole disposal programme rather than being claimed sale by sale without regard to what's coming next.
Where Private Residence Relief still helps — and where it stops
Selling garden land at the same time as the house it belongs to, and within the permitted area, can still qualify for Private Residence Relief as part of the overall disposal of the residence. The trap is timing: sell the garden plot separately, particularly after the house itself has already changed hands, and relief generally falls away, because the land is no longer being disposed of together with, or as part of the enjoyment of, a residence you occupy. A landowner who sells the house first and the development plot behind it a year later, expecting the same relief that would have applied to a combined sale, is usually disappointed.
This is one of the most common ways a straightforward-looking garden sale ends up generating an unplanned tax bill: the land was always going to be sold, the only question was timing, and the wrong order turned a relieved gain into a taxable one.
How this interacts with options and overage
A part disposal of physical land, sold outright now, is a different structure to the contingent arrangements covered in our guides to option and promotion agreements and overage and clawback agreements. Those structures defer or condition the sale itself, often to obtain planning consent before a price is fixed. A part disposal, by contrast, is a present, unconditional sale of a defined piece of land, with the CGT question being purely about how much of the original cost that piece is allowed to carry — not whether or when a disposal has happened at all. Many landowners end up using more than one of these mechanisms across a single scheme as it comes forward in phases, and each one needs its own tax analysis rather than being treated as interchangeable.
Common mistakes
- Applying the small part disposals relief without checking the one-fifth and £20,000 tests against the whole holding, not just the plot being sold
- Assuming cost apportions by area rather than by value, and under-claiming cost relief on a high-value development plot as a result
- Selling a garden plot after the house has already gone, expecting Private Residence Relief that no longer applies once the two are no longer disposed of together
- Treating small part disposals relief as if it removes the gain permanently, rather than simply deferring it onto the next disposal
- Not getting a proper valuation of the retained land immediately after the sale, which is the figure the whole apportionment formula depends on
What this means for landowners
Anyone selling part of a garden, field or wider holding to a developer should work out the apportionment, and check whether small part disposals relief is available and worth claiming, before agreeing a price rather than after. Where more than one sale is likely as a scheme develops in phases, it's worth planning the sequence and the base cost consequences across the whole programme, not just the transaction directly in front of you. It's exactly the kind of calculation we work through for landowners and developers as part of our Property Advisory service.
Common questions
What is a part disposal for Capital Gains Tax?
A part disposal happens when you sell or transfer part of an asset you own, such as a garden plot or a field strip, while keeping the rest. Rather than deducting the whole original cost from the sale proceeds, only a proportion of the cost, calculated by a set formula, is deducted, leaving the remaining cost attached to the land you still own.
How is the cost apportioned on a part disposal of land?
The standard formula deducts A divided by (A plus B) of the original cost, where A is the proceeds received for the part sold and B is the market value of the part retained immediately after the sale. Land sold with development potential attracts a proportionately larger share of the base cost precisely because that value uplift makes A large relative to B.
What is small part disposals relief and when does it apply?
Small part disposals relief lets a taxpayer treat proceeds from a small land sale as a deduction from the base cost of the retained land instead of triggering an immediate gain, provided the proceeds do not exceed one-fifth of the market value of the whole holding before the sale and total qualifying proceeds in the tax year do not exceed £20,000. It defers the gain rather than removing it, since the retained land carries a lower base cost when it is eventually sold.
Does Private Residence Relief cover the sale of a garden plot for development?
Only in limited circumstances. Selling garden land at the same time as the house, within the permitted area, can qualify for relief as part of the overall residence disposal. Selling a garden plot separately, particularly after the house itself has already been sold, generally falls outside relief because the land is no longer being enjoyed with the residence at the point of disposal.
Kieran Holsgrove is a Director and Co-Founder of Grafene Accounting, the property tax specialist firm based in Liverpool. He advises property developers, investors and landlords across Merseyside, Greater Manchester, Lancashire and Cheshire on tax structuring, developer VAT, SDLT and the long-view decisions that compound over the life of a portfolio.
This article is general information, not personal tax advice, and tax rules change. Your own position depends on facts we cannot see from here — please take advice before acting on anything above.