100 Charge on sale of land with right to reconveyance

Summary

Where a landowner sells land subject to a condition that it is to be (or may be required to be) sold back to him/her subsequently for a lower price, a charge to tax under Case IV of Schedule D arises for the year in which the original sale takes place. The amount chargeable depends on the earliest date on which the reconveyance can take place.

Details

(1) Where land or an interest in land is sold on terms providing that it is to be, or may be required to be, reconveyed (that is, sold back) to the vendor at a future date or to a person connected with the vendor, the vendor is charged to tax under Case IV of Schedule D on the excess of the sale price over the price fixed for the reconveyance less, where the earliest date on which it could be sold back is 2 years or more after the sale, 2 per cent for each year (excluding the first year) between the sale date and the date of the reconveyance.

(2) Where the date of the reconveyance is not fixed and the price on reconveyance varies with the date, the price to be taken in ascertaining the excess amount chargeable to tax is the lowest possible price under the terms of the reconveyance. If the actual reconveyance takes place at a date later than the date used to calculate the tax liability, the taxpayer may (notwithstanding the general time limit for making a claim for a repayment of tax contained in section 865) make a claim within 4 years of the actual date of reconveyance, to have the assessment recalculated and any excess tax paid refunded. A claim for the repayment of the excess tax paid must be a valid claim within the meaning of section 865(1)(b). (The meaning of a valid claim is dealt with in section 865).

(3) Where the sale of land provides for the leaseback of the land to the vendor or a person connected with the vendor, the preceding provisions apply as if the grant of the lease were a reconveyance at a price equal to the sum of the premium (if any) for the lease and the value, at the date of sale, of the right to receive a reconveyance of the reversion (that is, the superior interest to the lease) immediately after the lease begins to run (as a lease may be granted to take effect from a future date, the date of the grant of the lease is not necessarily the same as the date when it begins to run). However, excluded from this provision are sale and leaseback agreements where the lease is granted and commences to run within 1 month of the sale.

(4) Where the vendor is a dealer in land, the vendor’s trading receipts taxable under Case I of Schedule D are to be reduced by the amount on which tax is charged under this section. Such a trader may at some stage claim under subsection (2)(b) to have his/her charge to tax under this section recalculated by reference to the actual date of reconveyance or leaseback. In such cases the Schedule D Case I assessment for the relevant period is revised to take account of the recalculated Schedule D Case IV charge.

Relevant Date: Finance Act 2021