Compulsory Purchase Costs and Compensation Exempt from Chargeable Consideration

Compulsory Purchase Payments and Land Transaction Tax

When land is bought through compulsory purchase, LTT is usually worked out on the amount paid for the land or rights acquired. However, certain extra payments made under statute do not count as chargeable consideration, including some legal costs and compensation for disturbance or other losses that are not based directly on the land’s value.

• The price paid for the land itself remains relevant for LTT in the normal way.
• Costs paid under section 23 of the Compulsory Purchase Act 1965 are not chargeable consideration.
• Compensation paid under section 5(6) of the Land Compensation Act 1961 for disturbance or other matters not directly based on land value is also not chargeable consideration.
• The key issue is the legal nature of each payment, not just the wording used in a settlement or agreement.
• Payments must be split carefully between land value and excluded statutory costs or compensation, as treating everything as consideration could overstate the LTT due.

Scroll down for the full analysis.

Compulsory purchase: when costs and compensation are not charged to LTT

This page explains a narrow but important point about Land Transaction Tax (LTT) and compulsory purchase. Where a person receives certain payments because land is being compulsorily acquired, not every payment counts as chargeable consideration for LTT. In particular, some statutory costs and compensation payments are treated differently from the price paid for the land itself.

What this rule is about

LTT is generally charged by reference to the consideration given for a land transaction. In a compulsory purchase case, the acquiring authority may pay more than just the amount attributable to the value of the land. It may also have to meet statutory costs or pay compensation for disruption and related losses.

The point addressed here is whether those extra amounts form part of the chargeable consideration for LTT. The official material says that some of them do not.

What the official source says

The source states that two categories of payment are not chargeable consideration:

• costs payable under section 23 of the Compulsory Purchase Act 1965; and
• compensation for disturbance or other matters not directly based on the value of the land, where paid under section 5(6) of the Land Compensation Act 1961.

The key distinction is between:

• payment for the land itself, which is based on the land’s value; and
• certain additional statutory payments, which compensate the owner or occupier for costs, disturbance, or other losses arising from the compulsory purchase process.

According to the official position, those additional amounts are not treated as chargeable consideration.

What this means in practice

If land is acquired compulsorily, the amount paid for the land will still need to be considered for LTT in the usual way. But where the acquiring authority also pays qualifying statutory costs or compensation for disturbance, those amounts should not be added to the chargeable consideration simply because they are paid alongside the acquisition.

This matters because compulsory purchase awards can be made up of several elements. If all elements were wrongly treated as consideration for the land transaction, the LTT calculation could be overstated.

In practical terms, the parties need to separate out:

• the amount attributable to the land or rights acquired; and
• the amount attributable to statutory costs or compensation that is not directly based on land value.

The source is clear that the latter category is outside chargeable consideration, at least for the specific statutory heads it identifies.

How to analyse it

A sensible way to approach this is to ask the following questions:

• Is there a land transaction arising from a compulsory purchase?
• What payments are being made in connection with that transaction?
• Which part of the payment is for the value of the land or rights acquired?
• Is any part of the payment made under section 23 of the Compulsory Purchase Act 1965 as costs?
• Is any part of the payment compensation for disturbance or another matter not directly based on land value under section 5(6) of the Land Compensation Act 1961?

If a payment falls within one of the statutory categories identified in the source, the official position is that it is not chargeable consideration.

The critical issue is the legal character of the payment, not just the label used in negotiations or in a settlement document. A payment described loosely as “compensation” may still need to be analysed to see whether it is really payment for the land, or instead compensation for disturbance or statutory costs.

Example

Suppose a public authority compulsorily acquires a shop. It pays one amount for the market value of the land interest acquired. It also pays a separate amount to compensate the trader for disturbance caused by having to relocate, and reimburses qualifying statutory costs under the compulsory purchase legislation.

On the basis of the source material, the amount paid for the land interest is the part relevant as consideration for the transaction. The disturbance compensation and the statutory costs are not chargeable consideration.

Why this can be difficult in practice

The main difficulty is separating the different elements of a compulsory purchase payment accurately. Awards and settlements may be agreed globally, or the paperwork may not clearly identify which sums relate to land value and which relate to disturbance or costs.

There can also be a factual question about whether a payment is truly “not directly based on the value of land”. That distinction matters. The source only excludes the types of payment it identifies. It does not say that every payment made on a compulsory purchase is automatically outside chargeable consideration.

So the analysis depends on the statutory basis and substance of the payment. Where the breakdown is unclear, the LTT treatment may be harder to establish with confidence.

Key takeaways

• In a compulsory purchase case, not every payment made by the acquiring authority counts as chargeable consideration for LTT.
• Statutory costs under section 23 of the Compulsory Purchase Act 1965 are not chargeable consideration.
• Compensation for disturbance or other matters not directly based on land value under section 5(6) of the Land Compensation Act 1961 is also not chargeable consideration.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Compulsory Purchase Costs and Compensation Exempt from Chargeable Consideration

View all WRA LTT Guidance Pages Here