I have a UK client company which is to be paid £4300 a month for 97 months. The client wants to sell this income stream for an up front lump sum payment. This will be approximately £325,000, giving the person paying the lump sum a return of approximately 6% per annum gross.
Any ideas regarding the correct tax treatment? Does my client treat the lump sum as a trading receipt in year one (the monthly payments are being received under a contract for partnering support, which is part of the company's trade).
And what about the tax treatment for the individual receiving the income stream? The receipts of £4,300 will be part capital and part income - is there an HMRC formula to calculate the income element? Does tax have to be deducted at source on any element?
Thanks for any advice.