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Where Taxpayers and Advisers Meet

Tax treatment of option fee.

grumpy
Posts:3
Joined:Wed Aug 06, 2008 3:15 pm
Tax treatment of option fee.

Postby grumpy » Sat Jul 30, 2022 11:45 am

My wife and I entered into an option agreement in respect of the sale of a plot of commercial land. The exercise of the option was dependent on the purchaser gaining planning consent for their development. The option was for 12 months with various clauses meaning it had a long stop date of up to 18 months. For granting this option we received a fee of £5k which was non refundable. The purchaser has gained planning consent and is going to exercise their option. My question is, how should the option fee be treated for tax purposes? Is it Capital Gains or Income. If, as I suspect it is the latter can I offset the legal fees in drafting and oversight of the option agreement? Also I have carried forward losses from previous years and will have losses from the current year, can I offset these against the 'income' of £5k. All these losses were accumulated by way of the insurance, upkeep and maintenance of the site, which was previously two industrial units that we rented out and then had demolished some four years ago, the accumulated losses arise from continued expenditure with no rental income to offset them.

Thank you in advance for any assistance in this matter.

Grumpy

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Tax treatment of option fee.

Postby pawncob » Sat Jul 30, 2022 8:35 pm

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg12312
With a pinch of salt take what I say, but don't exceed your RDA

grumpy
Posts:3
Joined:Wed Aug 06, 2008 3:15 pm

Re: Tax treatment of option fee.

Postby grumpy » Sun Jul 31, 2022 9:05 am

pawncob - thank you for your time in responding to my query, much appreciated.

To be treated as a charge on capital. The land disposal will be adding to the capital losses I have accrued, maybe one day I'll make a profit on something!

Kind regards

Grumpy


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