what is taxation of a capital payment

how to work out tax on this

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Rental income has been recieved on a quarterly basis from Orange for a mobile phone mast on farm land. An investment company has proposed to make a lump sum capital payment to the landownwer in lieu of future rental income. How is this taxed? The agreement with Orange stated that the contract could be terminated with 3 months notice. I am not sure how long the the original agreement was with Orange. Thanks

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By frankie3
22nd Jan 2020 15:24

some additional information regarding the length of lease..... the original lease was for 10 years, but the lease has expired, and so Orange could terminate the lease with 3 months notice. No new lease had been completed. The investment company made their lump sum capital payment proposal in lieu of rental income on this basis.

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By Accountant A
22nd Jan 2020 16:41

Google ‘transfers of income streams’.

No idea how that works where future income flows are contingent.

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RLI
By lionofludesch
22nd Jan 2020 17:37

Is it a payment for a surrender of a legal right ?

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By Tax Dragon
22nd Jan 2020 17:48

There's no tax on a proposal being received.

You'll want sight of the proposal to advise on the tax consequences of accepting it. (Don't forget VAT, in some circs.)

Since we don't have sight of the proposal, it's hard to comment much beyond what has been said here. You need to identify what is being sold. It's likely either income, a legal right, or an interest in land.

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paddle steamer
By DJKL
22nd Jan 2020 18:03

Sounds like a premium of some description.

Ignoring accounts and tax, there are some very complex issues with phone mast leases that can be scary for the uninitiated ; tenants say acquiring rights to remain (often at lower rent),difficulties with removing them except for particular grounds etc (New Code rights acquired) ,so I would strongly advise discussing this with either a solicitor versed in phone masts and the new laws re same or with a consultant or possibly with both before entering into any change in arrangements.

See link;

https://www.stevens-bolton.com/site/insights/articles/resisting-code-rig...

(We have a mast we lease to a mobile network and we have been dealing with these issues with our solicitors off and on over last year or so- they are tricky and seem to turn on its head most of what we thought we knew about general property leasing- or certainly did in my case.)

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By frankie3
23rd Jan 2020 12:38

the investment company describes it is as an "up front capital payment in return for the annual rent the land owner receives for the mast on their property"..... the investment company would then receive the annual rent

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Replying to frankie3:
RLI
By lionofludesch
23rd Jan 2020 12:44

So they've bought the right to receive rent.

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Replying to lionofludesch:
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By frankie3
23rd Jan 2020 13:01

thanks lionofludesch,
there was no VAT charged on the rent, so no option to tax had been exercised, so no VAT on the lump sum payment.

so treat the lump sum payment as assessable under capital gains tax?

in this case cost would be very small, because the site for the mast is small and is on agricultural land.

I understand that the capital payment will be made in instalments over a 2 year period, but confers rights to the investment company for a 30 year period. Is the proper term for this transaction a leasehold sale?

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Replying to frankie3:
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By Tax Dragon
23rd Jan 2020 13:32

I wouldn't dismiss DJKL's comments so quickly. I will now demonstrate some ignorance to illustrate a point I often make: I'm not a lawyer.

Will your client have to be involved with future rental negotiations? If he's not disposing of an interest in the land, he surely has a say? (If he's not disposing of an interest in land... making a supply of land... why is the option to tax relevant?) But on the other hand, the purchaser of the 'right' must have a say too... so has an interest in land been sold/supply made?

Moreover, these masts have specific legal protections, because they sustain the nation's communications. Is that relevant to the tax? I don't know. It does seem to mean that, what you think might be happening, probably isn't what is really happening. And that was DJKL's point.

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Replying to Tax Dragon:
paddle steamer
By DJKL
23rd Jan 2020 14:30

They are tricky- the Acts etc give a lot of rights to network operators and there are very structured processes of what needs done and when. The new laws are also being tested in the courts quite regularly so there is a degree of uncertainty and rents for sites have been massively pushed down by the telecom companies relying upon the new Code- I get an e mail update service re this from one of the firms of solicitors we use which I skim read.

I have spent over twenty years leasing commercial property (I work for a property group), my colleague started as a trainee surveyor over 50 years ago, yet both of us called in pros to deal with our mast lease issues- get this wrong and the impact on the site could in future years be very expensive. Caveat Emptor.

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Replying to DJKL:
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By Tax Dragon
23rd Jan 2020 14:40

Oh, so does my memory (as below) date from before the new code?

I forget when it was and what I looked at.

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Replying to Tax Dragon:
paddle steamer
By DJKL
23rd Jan 2020 15:02

The jumping together/industry consolidation I think certainly started long before the new code, though maybe it continues (We had Voda and O2 who both jumped into using O2's mast some years ago)

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By Tax Dragon
23rd Jan 2020 14:10

Oh and I've remembered something else. The mast is probably used by multiple comms companies. Payments pass between them for that privilege. The landowner (your client) might have an agreement that gives him a slice of that action. Maybe he should keep hold of what he's got. (DJKL's other point.)

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Replying to Tax Dragon:
paddle steamer
By DJKL
23rd Jan 2020 14:37

You also have 5G rollout and new kit to be added etc. We used to have two leases, a £12k and a £8k, years ago they both joined together through one mast; guess which lease was dropped and which they both now use?

Anyway I have no comment on the outlined deal and tax etc but if it were my client I would be ensuring they had appointed a set of "Pros from Dover" before a local solicitor ,who likely knows nothing. gets taken to the cleaners by the pros acting for the telecoms companies.

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