Client selling investment properties . Would be better after APRIL 2008 but both parties want certainty now. Is a condition that the sale will be completed on 6th April 2008 "provided that the CGT rates at that time are 18%" ie is that condition acceptable and uncertain enough (should be considering this government) as part of a conditional sale which would make the contract date 6th April not now?
Andy Shady
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Conditional contract
Have you looked at http://www.hmrc.gov.uk/manuals/CG1manual/cg14273.htm
as this example would seem analogous. However, I think the parties should each take independent legal advice on the contract. If it is conditional, then my understanding is the whole contract can in effect abandoned if and until the condition is met. By definition, therefore there cannot be the certainty your client wants. They need to weigh the gain in tax against the risk that they could lose the sale.
Better to use an option
We've had a similar situation and concluded that the best way was to grant an option to the purchaser to buy at the agreed price, the option not being exercisable before 6/4/08.
Take a 10% non refundable deposit - but structure it so that the 10% is the price for granting the option. If the buyer exercises the option both parties have what they want. The option grant price is then taxable as part of the whole contract price.
If the buyer doesn't exercise, then the seller still has the properties - but also the 10% - taxable in 07/08 as a capital gain. So he should be happy.
If the seller wants absolute certainty that he will get the 18% rate (ie to insure against the govt changing its mind) you could also restrict the option to not being exercisable before that is legislated. But remember that the Finance Bill is unlikely to become the Finance Act before late summer 2008. In our case the client was willing to accept that 18% will be the rate and get his dosh in April 08.
If you want me to e-mail you a simple Heads of Agreement to reflect the above send me an e-mail at [email protected]