The CGT disposal date for property is exchange of contracts — not completion. This creates an unusual question: if a buyer defaults after exchange but before completion, and the sale falls through, does a CGT liability still arise?
The answer depends on how the transaction unwinds.
Exchange fixes the disposal date — unless the contract is rescinded
Under general CGT principles, once contracts are exchanged unconditionally, the disposal has occurred. If the buyer then defaults and fails to complete, the legal outcome matters greatly for CGT.
If the contract is rescinded (treated as if it never existed, typically through a court order or mutual agreement) rather than simply breached, HMRC accepts that the original exchange is undone and no CGT disposal arose. The seller is back to square one — owning the property at the original base cost.
If the contract is terminated by the seller for the buyer's breach (the more common scenario), the position is more complex. The original exchange remains a CGT event in principle, but because completion never occurred, a second disposal (the return of the property to the seller) needs to be considered.
HMRC's guidance accepts that where a contract is brought to an end by reason of default, the original disposal may not be treated as having given rise to a final gain — but this depends on the specific facts and whether consideration changed hands.
The forfeited deposit
If the buyer paid a deposit that you are entitled to retain on their default, that deposit is treated as consideration received by you. The CGT position on the deposit depends on whether the underlying disposal (the exchange) is treated as having occurred.
If the overall contract is rescinded ab initio (from the beginning), the deposit received is treated as a capital sum derived from an asset — which itself is subject to CGT as a separate transaction. The sum received is the proceeds and must be reported.
In practice, forfeited deposits on residential property are typically modest (5-10% of the purchase price), but they still require careful CGT analysis.
Our guide on sale falls through: the full picture
We have a dedicated guide on the CGT implications of a sale falling through — covering the position at different stages (before exchange, after exchange, and after conditional contract). See our article on CGT when a property sale falls through for the detail.
When the property is re-sold after the default
If you are unable to sell to the original buyer, re-list the property, and eventually sell to a different buyer, the CGT calculation for the eventual sale is based on your original base cost and the final sale price. The abortive transaction with the defaulting buyer is separate.
You should keep records of all costs associated with the abortive transaction — legal fees, agent fees incurred in the original failed sale — as these may be deductible costs of the eventual disposal if they are directly connected to the property's eventual sale.
Impact on the 60-day return
If you filed a 60-day CGT return after the original exchange (believing the sale was proceeding) and the transaction subsequently fell through, you can amend the return. HMRC allows amendments to 60-day returns within 12 months of the filing deadline (60 days after completion and not exchange) for the relevant tax year.
If you paid CGT on a disposal that did not ultimately produce taxable proceeds, a repayment or correction can be made — but you will need to document the position clearly, including the rescission or termination of the contract and any deposit retained.
The lesson for sellers
Wait until completion has indeed occurred before making the report payment.
If your transaction has fallen through after exchange and you are unsure of the CGT position — particularly regarding a forfeited deposit or a return already filed — a Chartered Accountant/Chartered Tax Advisor can advise on the correct position and deal with any necessary amendments.