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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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One of our client (Trade: Fish & Chip Shop) made an agreement

Customer Question

One of our client (Trade: Fish & Chip Shop) made an agreement with another person to sell his leasehold shop for £ 100,000.According to that agreement the purchaser will try and manage the shop for three months and after 3 months if he wants to back out he will hand over the shop to the vendor and the vendor will keep the £20,000 out of the lump sum of 100,000 which he paid initially.
The vendor will pay back the rest of £ 80,000 within one year to the buyer.
.The purchaser handed back the shop to the vendor after 3 months as per the terms of the agreement.All this happen with in the same tax Year
My questions are:
1:- Shall we treat this as a disposal?
2:-If we treat this as disposal could we have to show 20,000 as gain?
3:-If we don't consider this as disposal is there any other treatment for this.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
I would be inclined to declare this as a capital gain. It would then be taxed, after deduction of the Annual Exempt Amount of 11.1K, at 18% or 28% or a combination of the two rates depending on the income including the gain in the year of sale. Worst case scenario is:
20K - 11.1K = 8.9K @ 28% = say 2.5K tax.
If it goes through the books as income then the tax charge would be at a minimum 20% and:
20K @ 20% = 4K tax due.
Simple, as the Merkaat in the TV advert would say!
I do hope my answer has been of some assistance.
Customer: replied 2 years ago.

Would kindly quote authority by which we can treat the said transaction as gain for my future / file reference.

Thanks

Expert:  bigduckontax replied 2 years ago.
There is no authority needed, it is standard Capital Gains Tax (CGT) procedure. If the sale takes place at the 3 month point then the gain is subject to the tax. If it falls through there is no CGT, but the 20K would be trading income in the hands of the prospective vendor.

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