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Summer 2004 Newsletter

Contract Time

When you sell a property, there are usually at least two significant dates in the deal - the exchange of contracts, when you are committed, and completion, when you hand over the money and take possession. Even if they are only a month apart, it's important for tax purposes that the vendor's capital gain happens on the contract date, not on completion. If that's one side of 5 April and completion is the other side, you have to pay tax a whole year earlier.

In a recent tax case, it seems that the purchaser wanted to buy the land, but didn't want possession of it for a number of years. So the vendor stayed in occupation, and it seems that they only realised that there was a tax problem seven years later. They hadn't realised that there would be a capital gain on the contract, even though the whole of the money hadn't changed hands, and neither had the land.

It's not an uncommon situation - the purchaser wants the certainty of a contract, and the vendor wants to stay put for a period. If you are in that situation, there are things you can do to improve the tax position, and we can discuss them with you. The main thing is to know that the contract triggers the gain.