Annex 1: Minor Changes in the Law Change 47: Property income: lease premiums etc: receipts in respect of sales with right to reconveyance and sale and leaseback transactions: sections 224 and 225
This change provides that a property business receipt does not arise in respect of a sale with a right to a reconveyance (or a sale and lease back transaction) unless the period between the sale and the earliest date of reconveyance (or leaseback) is 50 years or less.
It brings the income tax and corporation tax codes back into line.
Section 36(1) of ICTA provides for a property business receipt to arise where, broadly, an interest in land is sold (for price “A”) and the terms of sale provide for the interest to be reconveyed (for lower price “B”) to the vendor or someone connected with the vendor. The property business receipt that arises is, in effect, the following percentage of :
If the earliest date of reconveyance is more than 51 years after the sale, the property business receipt under section 36(1) of ICTA will always be zero. The same result is achieved by an approach under which a property business receipt does not arise if the earliest date of reconveyance is more than 51 years after sale (an approach taken by sections 34 and 35 of ICTA).
Sections 34 and 35 of ICTA adopt 50 years as the interval which determines whether a property business receipt arises. Adopting a similar interval for the purposes of section 36(1) of ICTA is taxpayer favourable.
Exactly the same considerations apply in relation to section 36(3) of ICTA (sale and leaseback) as are set out above in relation to section 36(1) of ICTA.
Sections 224(1)(b) and 225(1)(b) change the law, for corporation tax, by providing an interval of 50 years to determine whether a property business receipt arises in the case of a sale with a right to reconveyance or a sale and leaseback transaction. The same change was made for income tax in sections 284 and 285 of ITTOIA (see Change 72 in ITTOIA).
This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.