Disturbance fee

Disturbance fee

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Client is building a house on a rural plot.  At the moment he is staying in a static caravan located on site whilst full planning permission is granted and his old house is sold.

He has been offered £25k "disturbance fee" by Scottish Coal who are mining near his site. 

The adjacent farmer has been offered a similar amount.

Tax position?

I think the fee is being derived from an exempt asset (i.e. from the land which he resides) and the receipt is exempt.

Any manuals available to support this view?

Replies (3)

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By Steve Kesby
11th Jan 2012 17:30

I can't give you manuals

I do agree with you to an extent though.

It seems to me to be a capital sum derived from an asset, so chargeable under S.22 TCGA 1992 (S.23 doesn't seem to apply unless the amount received is "small").

Therefore, you'd think it would be covered by main residence relief.

However, I think, from the wording of S.222(1), that to get main residence relief there needs to be a dwelling-house on the land which the individual has occupied as his only or main residence.

I think it could be argued that you don't yet have such a dwelling house though, such that the deemed disposal doesn't benefit from the relief.

There's a first two years concesson floating about somewhere that I can't put my finger on at the moment though, and which I'm not sure might change the analysis.

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By blok
12th Jan 2012 08:33

.

Steve, I am fairly sure I have seen a case before that confirmed a static caravan was a main residence. I may be wrong but it does ring a bell.

 

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By Steve Kesby
12th Jan 2012 11:01

Oh happy day!

I agree that a caravan can be a main residence.  My problem is that I don't think it can be considered to be a dwelling-house as the legislation requires.

You may have found it by now, but the concession I was referring to (which doesn't seem to have been withdrawn yet) is ESC D49.  This does look as though it might cover your chap. It reads:

"D49. Private residence relief: Short delay by owner-occupier in taking up residence
This Concession applies:

where an individual acquires land on which he has a house built, which he then uses as his only or main residencewhere an individual purchases an existing house and, before using it as his only or main residence, arranges for alterations or redecorations or completes the necessary steps for disposing of his previous residence.

In these circumstances, the period before the individual uses the house as his only or main residence will be treated as a period in which he so used it for the purposes of Sections 223(1) and 223(2)(a) TCGA 1992, provided that this period is not more than one year. If there are good reasons for this period exceeding one year, which are outside the individual's control, it will be extended up to a maximum of two years.

Where the individual does not use the house as his only or main residence within the period allowed, no relief will be given for the period before it is so used. Where relief is given under this Concession it will not affect any relief due on another qualifying property in respect of the same period."

Obviously, the purpose of the concession is to have this initial period treated as a period of occupation for the purposes of calculating the relief on disposal of the property.  It seems to me to also accommodate a deemed disposal under S.22 during this period though.

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