Consideration - taxable ?


M

Malcolm

Hi
I have received a financial consideration for granting a right of way over
part of my UK land.
Is this taxable ?
Thanks
Malcolm
 
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R

Ronald Raygun

Malcolm said:
I have received a financial consideration for granting a right of way over
part of my UK land.
Is this taxable ?
Is this a recurring consideration, similar to rent? If so, then it
will be subject to income tax.

If not, then it is similar to selling the land, and accordingly it
ought to be subject to CGT if and only if CGT would be due if you
were actually to sell that land.
 
T

Tim

Malcolm said:
Is this a recurring consideration, similar to rent?
If so, then it will be subject to income tax.

If not, then it is similar to selling the land, and accordingly
it ought to be subject to CGT if and only if CGT
would be due if you were actually to sell that land.
If CGT is applicable, then how much relief would
be available - eg from part of the acquisition cost?
 
R

Ronald Raygun

Tim said:
If CGT is applicable, then how much relief would
be available - eg from part of the acquisition cost?
I'd have thought relief would apply in the same ratio as if
selling the whole land. For example, if land acquired for
£100k would fetch £200k if sold, i.e. would attract acquision
relief of £100k or 50% of the proceeds, then selling any fraction
of it, such as £1k worth of right of way, should also attract 50%
relief.

Another way of looking at it, though, is to split off the value
of the access rights from the whole value of the land, and to
consider what gain there had been in the value of the access
rights themselves. If the gain only arose as a direct consequence
of a recent development next door, those rights might have been
worthless at first, so the entire consideration would be the gain.
 
M

Martin

Ronald Raygun said:
I'd have thought relief would apply in the same ratio as if
selling the whole land. For example, if land acquired for
£100k would fetch £200k if sold, i.e. would attract acquision
relief of £100k or 50% of the proceeds, then selling any fraction
of it, such as £1k worth of right of way, should also attract 50%
relief.

Another way of looking at it, though, is to split off the value
of the access rights from the whole value of the land, and to
consider what gain there had been in the value of the access
rights themselves. If the gain only arose as a direct consequence
of a recent development next door, those rights might have been
worthless at first, so the entire consideration would be the gain.
Would the rules re. selling one of a pair of ming vases apply here? IOW,
the value of the disposal is the original value of the whole, less the
revised value of the land (now much reduced because others have access
rights)?

It would, of course, be helpful to know if this is a significant disposal,
or merely tuppence a year to allow BT to run an overhead wire over one
corner of a field. If significant, I would imagine the OP used a solicitor,
and would expect him / her to have mentioned any tax issues.

If it's not a CGT thing, would it be Sch.A - or may be there's a
"rent-a-footpath" scheme lurking somewhere, just waiting to be exploited.
 
J

Jonathan Bryce

Martin said:
It would, of course, be helpful to know if this is a significant disposal,
or merely tuppence a year to allow BT to run an overhead wire over one
corner of a field. If significant, I would imagine the OP used a
solicitor, and would expect him / her to have mentioned any tax issues.
The solicitor would probably just mention that there might be tax issues and
that he should ask an accountant.
 
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M

Malcolm

Martin said:
Would the rules re. selling one of a pair of ming vases apply here? IOW,
the value of the disposal is the original value of the whole, less the
revised value of the land (now much reduced because others have access
rights)?

It would, of course, be helpful to know if this is a significant disposal,
or merely tuppence a year to allow BT to run an overhead wire over one
corner of a field. If significant, I would imagine the OP used a
solicitor, and would expect him / her to have mentioned any tax issues.

If it's not a CGT thing, would it be Sch.A - or may be there's a
"rent-a-footpath" scheme lurking somewhere, just waiting to be exploited.
Thanks to everyone for the helpful and interesting comments.
In response to the request for further info, I would add :-
The consideration was for £4000 for a right of way over an alley at the back
of my property (a shop) for fire escape purposes only.
The grant is valid for 5 years and then terminates.
Presumably the grantee will wish to renew each time the grant expires as the
Fire safety authorities will not let the grantee's shop trade to the public
without an adequate means of escape incase of fire.
I did use a solicitor but he has not mentioned any tax implications. I think
we always assumed it would be taxable in some way or another.
I need now to clarify if these recurring considerations should be treated as
rent
or if not as rent as CG and if as CG how do I determine the gain given that
I have lost some of the value of the land.
Also any comments as to what consideration I should charge next time would
be received with interest.
Thanks again
Malcolm
 
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R

Ronald Raygun

Malcolm said:
Thanks to everyone for the helpful and interesting comments.
In response to the request for further info, I would add :-
The consideration was for £4000 for a right of way over an alley at the
back of my property (a shop) for fire escape purposes only.
The grant is valid for 5 years and then terminates.
In that case it's not capital gains but income, and should be treated
as £800 income for each of the 5 tax years in question. Technically,
if the 5-year period does not align with the tax year, these earnings
should be spread over 6 tax years, as £800 for each of the 4 middle
years and £X in the first and £Y in the last year, in appropriate
proportions, where X+Y=800.

Even if the money was received up front for the whole 5 years, it should
be treated as "earned" as if paid in annual instalments.
Presumably the grantee will wish to renew each time the grant expires as
the Fire safety authorities will not let the grantee's shop trade to the
public without an adequate means of escape incase of fire.
I did use a solicitor but he has not mentioned any tax implications. I
think we always assumed it would be taxable in some way or another.
I need now to clarify if these recurring considerations should be treated
as rent
I think the relevant technical term is "wayleave". Very much like rent.

According to the notes for the Land & Property pages of the tax return,
you should treat this as part of the trading income for your shop, unless
in addition to the wayleave you receive rent for the land in question, in
which case it goes in box 3.20. If you aren't trading from the shop (for
example, if you just own it and lease it to someone else to trade from),
and if the alley doesn't form part of what is leased to the business
trading from the shop, then the wayleave income should go on box 13.3.
or if not as rent as CG and if as CG how do I determine the gain given
that I have lost some of the value of the land.
You have not lost some of the value of the land, other than temporarily.
As the grant requires to be renewed periodically, you always have the
option to refuse to renew, so that your land can always revert to being
unencumbered.
Also any comments as to what consideration I should charge next time would
be received with interest.
How greedy do you want to get?
As much as the other shop is prepared to pay! :)
 

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