106 Tax treatment of receipts and outgoings on sale of premises

Summary

In certain circumstances a liability to tax under Case V of Schedule D is adjusted between the vendor and purchaser when premises are sold. This applies only where the contract for sale requires, as it would normally do, that income and outgoings for a period overlapping a particular date (normally the date fixed for the completion of the sale) are to be apportioned between the vendor and the purchaser.

Details

(1) Where, on a sale of premises (including an interest in premises) —

• rent becomes due after the making of the contract but before the date of completion,
• under the contract the rent is due to be apportioned between the vendor and the purchaser, and
• the part due to the purchaser is in fact received by the vendor in trust for the purchaser,

the amount received in trust by the vendor is not to be taken into account in computing his/her Case V income. Instead that part is treated as part of the purchaser’s Case V income. Similarly, where an outgoing is paid by the vendor on behalf of the purchaser, the purchaser is treated for the purposes of the charge to tax under Case V as if the purchaser had actually incurred the outgoing.

(2) The above rule applies in the same way where, under a contract for the sale of a premises (including an interest in premises), rent or outgoings become due before the making of the contract. For this purpose, the contract is treated as having been made before the rent or outgoing became due.

(3) Where on a sale of premises (including an interest in premises) the vendor is apportioned part of a receipt or outgoing which becomes receivable or payable by the purchaser after the apportionment, then, when the amount receivable is due or the amount payable is paid by the purchaser that amount is reduced by so much of it as was apportioned to the vendor. The part apportioned to the vendor is then taken into account in computing his/her Case V income.

(4) Any reference to a party to a contract is construed as including a person to whom the rights and obligations of that party under the contract have passed by assignment or otherwise.

Relevant Date: Finance Act 2021