If you sell a small part of a larger property holding for no more than one fifth of the value of the whole, and for £20,000 or less, section 242 of the Taxation of Chargeable Gains Act 1992 lets you claim that the sale is not a disposal. Instead, the sale price comes off the base cost of what you keep, so the gain is deferred until you sell the rest. The claim is optional, and in many cases reporting a small gain now is the better choice.

What does a section 242 claim actually do?

Normally, selling a strip of garden, a field or an access way out of a larger property is a part disposal. You need a valuation of what you keep, apportion your original cost using the A over A plus B formula in section 42, and report the gain. That process is covered in our guide to part disposals and the A over A plus B formula.

A claim under section 242(2) replaces that with a simpler rule. The transfer is not treated as a disposal at all, and everything that would have counted as consideration is deducted from the allowable expenditure on the holding when you later dispose of it. Nothing is taxed now and no apportionment of cost is needed, although you still need a reasonable view of the value of the whole to show the one fifth test is met. The gain is not exempt. It is carried forward inside a lower base cost.

Which conditions must be met?

All of the following must apply, under section 242 and HMRC’s Capital Gains Manual at CG71870:

  • The transfer is of part only of a holding of real property, and the consideration does not exceed one fifth of the market value of the holding as it stood immediately before the transfer. The value of the whole includes the part being sold.
  • The consideration for this transfer does not exceed £20,000.
  • If you made any other disposals of real property in the same tax year, the total consideration for all of them, including this one, does not exceed £20,000. This counts outright sales of other property too, not just small part disposals. Transfers to an authority with compulsory purchase powers that qualify under section 243 are left out of the total (section 242(4)).
  • The transfer is not a no gain, no loss transfer between spouses or civil partners (section 58) or within a group of companies (section 171).
  • Your interest is not a wasting asset, so a short lease does not qualify (section 242(7)).

Where the transfer is not for full consideration, for example a gift of a strip to a neighbour or a family member, section 242(5) uses the market value of the part transferred for both the one fifth test and the £20,000 tests.

What counts as the holding?

The one fifth test compares the sale price with the value of the holding, so defining the holding decides whether the test is passed. Section 242(6) limits the holding to the property whose cost would be apportioned under section 42 if the transfer were treated as a part disposal. CG71870 puts it practically: the holding is the smallest piece of property that could have included all of the part sold and that had a separately identifiable cost or deemed cost.

That links to the guidance on what is a single asset at CG71800. A single acquisition, whether by purchase, gift or inheritance, is normally one asset even if it includes a house, outbuildings and woodland. But separate acquisitions are separate assets. In HMRC’s example, someone who inherited a farm, bought adjoining fields and was later given the farmhouse and garden sells a strip for road widening that takes part of the bought fields and part of the garden; only those two assets are involved and each is valued separately. If you bought a small paddock next to your main holding, a strip sold from that paddock has to pass the one fifth test against the paddock alone.

What if the sale price is more than your cost?

A section 242 claim cannot reduce base cost below nothing. Section 244 says that where the allowable expenditure on the holding is less than the consideration, or is nil, section 242 does not apply. Instead you may elect for the consideration to be reduced by the allowable expenditure, with no expenditure left for any later disposal.

HMRC’s example at CG71870: Mrs J bought property in April 1984 for £5,000 and sold part of it in May 2017 for £15,000 when the whole was worth £200,000. Electing under section 244 gave a gain of £10,000 (£15,000 less £5,000), and nothing is allowable against the proceeds of the rest when she sells it. Older holdings with a low base cost often fall into this situation.

Worked example: claim or not?

Illustration only. Lena owns a field she lets for grazing, bought for £150,000. In 2026 to 2027 she sells a strip to a neighbour for £12,000, when the whole field is worth £300,000. She has no other disposals that year, so all the conditions are met. Ignore costs of sale.

No claim Section 242 claim
Cost of strip (£150,000 × £12,000 ÷ £300,000) £6,000 Not applicable
Gain in 2026 to 2027 £6,000 Nil
Annual exempt amount used £3,000 Nil
Taxable gain in 2026 to 2027 £3,000 Nil
Base cost of the rest carried forward £144,000 £138,000

If Lena later sells the rest for £400,000, her gain is £256,000 without a claim or £262,000 with one. The total gain over both years is the same, £262,000. The claim simply moves £6,000 of gain into the later year. Without the claim, half of that £6,000 is covered by the £3,000 annual exempt amount for 2026 to 2027, which GOV.UK confirms, and which would otherwise be lost if Lena has no other gains. With the claim, the whole £6,000 is taxed later, possibly at a higher rate.

When is a claim worth making, and when is it not?

A claim tends to help where:

  • your annual exempt amount is already used by other gains in the year;
  • you expect to keep the rest until death, because under section 62 assets passing on death are acquired at market value and are not treated as disposed of, so the reduced base cost never produces a tax charge (see the CGT uplift on death);
  • valuing the retained holding would cost more than the tax involved.

It tends not to help where the gain would be covered by an otherwise unused annual exempt amount or by losses, or where the part sold is garden of your home and private residence relief would exempt the gain anyway.

How and when is the claim made?

Section 242(2A) sets the deadline: for Capital Gains Tax, the first anniversary of the 31 January following the tax year of the transfer, which CG71870 describes as 21 months from the end of that tax year. For companies it is 2 years after the end of the accounting period. The same deadlines apply to a section 244 election. For a transfer in 2026 to 2027, an individual has until 31 January 2029. The claim is normally made in the Self Assessment return, with the details in the additional information.

A small part taken by an authority with compulsory purchase powers is dealt with by section 243 rather than section 242, which is covered in our guide to compulsory purchase. Payments for granting rights over your property, rather than selling part of it, follow different rules, explained in our guide to selling an easement or right of way.

What mistakes come up most often?

  • Testing one fifth against the value of everything you own nearby, instead of the holding with its own identifiable cost.
  • Overlooking another property sale in the same tax year that takes the total over £20,000.
  • Claiming where the price exceeds the remaining base cost, when only a section 244 election is available.
  • Claiming automatically and wasting the annual exempt amount for the year.
  • Not recording the reduced base cost, so the deferred gain is missed when the rest is sold.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.