Part disposals: the A over A plus B formula

Q: What mistakes come up most often?

Using the value of the part sold as B. B is the market value of what you kept, not of what you sold. A is the consideration. Apportioning costs that belong to one part. Spending only on the retained part is not deductible now, and spending only on the part sold should not be diluted. Forgetting the cost carried forward. Keep the working so the later sale uses the reduced cost. HMRC can check this on the later return. Claiming section 242 when it does not help. The full consideration comes off cost, so a claim can be worse than reporting a small gain that the annual exempt amount would cover anyway. Missing the £20,000 aggregate. The test covers all disposals of real property in the tax year, not just the transfer in question. Treating a lease as an ordinary part disposal. Leases granted out of short leases follow their own rules (CG12731 points to CG71000), and premiums can be partly taxed as income, as explained in our guide to lease premiums.

When you sell part of an asset and keep the rest, section 42 of the Taxation of Chargeable Gains Act 1992 splits the original cost using the fraction A divided by (A plus B), where A is what you received for the part sold and B is the market value of the part you kept. The rest of the cost stays with the retained part for a later sale. For small sales out of a larger property holding, and for small compensation or capital receipts, you can often claim to treat the receipt as a reduction in cost instead of a disposal.

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What counts as a part disposal?

Section 42(1) applies where a person disposes of an interest or right in or over an asset, and generally wherever, on the disposal of an asset, any description of property derived from that asset remains undisposed of. Common examples are:

selling a building plot from the edge of a larger site or garden, or a field from a farm;
granting a long lease out of a freehold, or selling a share in a property to a family member or business partner;
receiving a capital sum for the right to use an asset, such as a payment for an easement or wayleave, which section 22(1)(d) treats as a disposal even though you keep the asset;
receiving insurance or compensation money for damage to an asset that is not destroyed.

HMRC’s Capital Gains Manual at CG12700 lists part disposals alongside simple disposals and deemed disposals as the three ways a disposal can arise. The point is that you have given up something of value but the asset has not gone entirely.

How does the A over A plus B formula work?

Section 42(2) says the allowable cost is apportioned by reference to the consideration for the disposal (A) and the market value of the property which remains undisposed of (B). The fraction of the cost you deduct now is A divided by (A plus B). The remainder is attributed to what you kept.

HMRC’s own example at CG12731: an asset bought for £40,000, part sold for £15,000, remainder worth £45,000. The cost deducted is £40,000 multiplied by £15,000 over £60,000, which is £10,000, and the cost carried forward on the remainder is £30,000.

The formula only applies to costs that relate to the whole asset. CG12731 splits costs into three groups:

Type of cost	Treatment on the part disposal
Relates to the asset as a whole (purchase price, purchase legal fees, improvements to the whole)	Apportioned by A over (A plus B)
Relates only to the part sold (for example, a fence or access built only for the plot)	Deducted in full now
Relates only to the part kept	Not deductible now; carried forward in full

Section 42(4) confirms that expenditure wholly attributable to what is sold, or wholly to what remains, is not apportioned. Selling costs of the part disposal itself, such as the agent’s and solicitor’s fees on that sale, are incidental costs of that disposal and are deducted in full.

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Worked example: selling a plot

Illustration only. Sam bought a property with a large garden for £120,000 some years ago and has never lived there. Sam sells a building plot from the garden for £50,000, paying £2,000 in fees on the sale. A valuer puts the retained property at £200,000 immediately after the sale.

A is £50,000 and B is £200,000, so the fraction is £50,000 over £250,000, which is one fifth.
Cost deducted: £120,000 multiplied by one fifth gives £24,000.
Gain: £50,000 less £24,000 less £2,000 fees gives £26,000.
Cost carried forward on the retained property: £120,000 less £24,000 gives £96,000.

If Sam later sells the rest for £230,000, the deductible cost is £96,000 plus any later improvements. The annual exempt amount and rates are then applied as described in our guide to how capital gains tax is calculated. If the property had been Sam’s home, the rules on gardens and grounds would need checking first.

Where does the value of the retained part come from?

B is a market value, so it usually needs a professional valuation at the date of the part disposal. CG12731 tells HMRC officers to refer the value of the retained part to the Valuation Office for property, or to Shares and Assets Valuation for other assets. A figure that is simply reverse engineered from the original price will not survive an enquiry.

There are some practical shortcuts recognised in the same manual page:

Where the part sold is clearly a recognisable fraction of the whole, the cost may be divided by that fraction to avoid valuation work. This is the usual approach for shares sold out of a pool.
For a large estate where the part sold is recognisably separate from what is kept, HMRC’s manual describes an alternative basis that may avoid the normal apportionment.
If the asset was held at 31 March 1982, the March 1982 value is apportioned using the same formula instead of the original cost.

Section 42(5) adds that apportionment comes first, before any no gain, no loss rule (such as a transfer between spouses) or rollover relief is applied.

Can you avoid a disposal when you sell a small strip of a larger holding?

Yes, often. Section 242 applies to a transfer of part of a holding of real property where all of these are met:

the consideration does not exceed one fifth of the market value of the whole holding immediately before the transfer;
the consideration for that transfer does not exceed £20,000;
if you made other disposals of real property in the same tax year, the total consideration for all of them does not exceed £20,000;
the transfer is not between spouses or civil partners or within a group of companies, and the interest is not a wasting asset (CG71870).

If you claim, the transfer is not treated as a disposal. Instead the consideration is deducted from the allowable cost of the holding when you later sell it. The claim deadline under section 242(2A) is the first anniversary of the 31 January after the tax year of the transfer for individuals, which HMRC describes as 21 months from the end of the tax year, and two years from the end of the accounting period for companies.

Where the consideration is more than the allowable cost of the holding, section 244 replaces this with a different election: the consideration is reduced by the allowable cost, and no cost is left for later. HMRC’s example at CG71870 shows a part sold for £15,000 from a holding that cost £5,000, giving a gain of £10,000 and nil cost on the remainder.

Section 243 gives a similar claim where a small part is taken by an authority with compulsory purchase powers and you had not advertised or otherwise made known that you were willing to sell. Those transfers do not count towards the £20,000 annual total.

What other small receipts can be set against cost?

The same deduction from cost idea appears in two other places:

Compensation and insurance for damage: section 23(1) lets you claim that a capital sum is not a disposal where it is small compared with the value of the asset, or is spent on restoring it. HMRC treats small as 5% or less, or £3,000 or less (CG15703). See our guide to insurance payouts and compensation.
Small capital distributions on shares: under section 122(2), a capital distribution that is small compared with the value of the shareholding is deducted from cost instead. CG57835 confirms HMRC accepts 5% or less, or £3,000 or less.

What mistakes come up most often?

Using the value of the part sold as B. B is the market value of what you kept, not of what you sold. A is the consideration.
Apportioning costs that belong to one part. Spending only on the retained part is not deductible now, and spending only on the part sold should not be diluted.
Forgetting the cost carried forward. Keep the working so the later sale uses the reduced cost. HMRC can check this on the later return.
Claiming section 242 when it does not help. The full consideration comes off cost, so a claim can be worse than reporting a small gain that the annual exempt amount would cover anyway.
Missing the £20,000 aggregate. The test covers all disposals of real property in the tax year, not just the transfer in question.
Treating a lease as an ordinary part disposal. Leases granted out of short leases follow their own rules (CG12731 points to CG71000), and premiums can be partly taxed as income, as explained in our guide to lease premiums.

How is a part disposal reported?

A part disposal is reported like any other disposal, on the capital gains pages of the Self Assessment return or the company tax return, with the computation showing A, B and the cost split. A sale of part of a UK residential property by a UK resident may also need a 60 day property return if tax is due. A section 242, 243 or 244 claim is made in writing, or in the return if one is due, within the time limit. Keep the valuation report with your records, because the cost carried forward depends on it.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.