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Deferred consideration-PV decommissioning

Deferred consideration-PV decommissioning

We have a farming client who has now entered into a rental agreement with a solar power generator(SPG). Under the terms of the agreement an annual rental payment of £10,000 will be paid to our client to allow the  SGP to occupy the 7 acres of land on which solar panels have been erected. Additionally our client has received a payment of £20,000 for "decommissioning" at the end of the 20 year lease. The SPG will vacate the land at the end of the lease, leaving our client to restore the land to its former agricultural use, entailing inter alia the removal and disposal of the PV and peripheral equipment.

Views on the taxation consequences of this unusual arrangement please.


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07th Feb 2013 09:41

Interesting indeed

Off the top of my head, I'd imagine that the tax treatment will follow the accounting treatment, ie is it capital or revenue, is the client a Ltd Company?

It's akin I suppose to a grant but then, on a practical basis one question has to be has the SPG relinquished all right to the £20K, ie if the contract comes to an end before the 20 years is up, will they require all or a % back?

Subject to the above, the simple solution, subject to full disclosure, is to defer it on the balance sheet until it's used for spending or repayment.

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07th Feb 2013 10:31

Interesting one

I suppose it may come down to whether there is actually an obligation (legal or constructive) for the farmer to perform this decomissioning, if there is then I'd be looking at including a provision for the estimated cost in 20 years which when discounted back down to present value might approximate to £20K? If there's no obligation then I'd be inclined to call it income when received.

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07th Feb 2013 10:32


double post

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By blok
07th Feb 2013 10:37


interesting  -- my quick thoughts - worst case being is, asset derived from an asset subject to cgt, with no allowance for a contingency provision for reinstatement.  surely you cant have an obligation to reinstate your own asset?

dont see this as an income transaction.


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