Compnay sells land to developer for 30 houses. Deal is £600k now and 20% of each completed house sale (when house sold) - subject to a minimum of £150k per house. Ignoring the possible application of anti-avoidance on transactions in land, what is the ascertainable amount in this case?
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I would say...
... that you have:
ascertained consideration of £600K;contingent ascertained consideration of 30 x £150K (assuming the £150K is the minimum payable to the company for each sale, rather than the amount on which the 20% is calculated); andunascertained consideration of £X, being the amount, if any, that proves to be payable over and above the £150K per house.
When you say ignore the transactions in land legislation though. Really?
I assume you're familiar with BIM60350 onwards?
My understanding is this
I've never encountered it in practice, but I'd understood that you first had to calculate your capital gains (there will be a series of them) ignoring indexation.
The proceeds for the first gain would be the amount actually received, plus the contingent consideration (on the assumption that it will be received - you can obtain relief later if it isn't), plus the value of the right to receive the unascertained consideration.
The proceeds of the others would be the amounts of the unascertained consideration as and when they're received and the cost would be an (A/A+B) proportion of the value brought into the first gain calculation.
Those amounts start being charged as trading income once they start to exceed the gain that would have arisen had the land been sold as a capital asset immediately before the intention to develop was formed.
Then you can go back and recalculate your chargeable gains to exclude from the sale proceeds the amount charged as trading income and bring in your indexation.
The only effect for a corporate then is the loss of indexation for the development gain, which seems fair enough.
Is that right, Steve? (On the indexation point)
Will the company not be entitled to full indexation in any event (subject to it being restricted to the chargeable gain) since it is based on the original cost of the land? Or are you saying that the base cost needs to be apportioned somehow?
For example, land cost £200k sold to developer for £1m,. End of story as far as seller is concerned so indexation on £200k.
Alternatively, land sold for £750k (let's say value is £750k) plus a slice of the action. Anything further will be chargeable as income. But will the company still not get indexation on the £200k?
(Or are you referring to the additional indexation that would otherwise be available on the part-disposals of the chose in action?)
I can think of other implications for a corporate - impact on rollover relief, inability to use capital losses.
I think you're right BKD
Yes. The indexation is on cost, which is there in any event in the CGT part of the calculation. I suppose the indexation just skews it a little.
I'd accept the other points you make as well.