For many real estate sale and purchase transactions, the consideration for the sale will include an element of overrun. Exceedances can be structured in different ways. Its direct tax treatment depends on how it is structured and the tax status of the beneficiary and the payer. The payment of overruns also has implications for the objectives of the SDLT and VAT, which may be significant enough to advance the form of the transaction. These are not covered by this practice note. For the consequences of VAT, see the practice note: VAT treatment for overruns and for SDLT considerations, see practice note: SDLT paid counterparty – overrun payments. 2. Limit the duration of the overrun agreement to as short a period as possible. The longer the period, the greater the obstacle for the developer. For example, if the overrun is maintained for 10 years and depends on obtaining a building permit that increases the value of the land, but the developer obtains a building permit that does not increase the value during that period, the developer would not be required to pay an overrun. It is quite possible that there will only be value on the second or third application submitted during the ten-year period, which triggers an overpayment. Creating a dilapidation contract is complex and, as Louis Mathers, a commercial real estate lawyer at Parnalls Solicitors in Launceston, explains, it is essential to get good legal advice right away.
“Developers accept that landowners want a fair share of any increase in the value of their country,” Louis says, “but they don`t want to take all the risk of market changes or other unexpected events. A well-elaborated reprieve contract removes the guesswork and allows for a fair distribution of the real increase in soil value. However, if the wording goes wrong, the parties can argue over how much to pay and when. » Does your company have land ripe for development? If so, how do you get the best value from a potential developer? The price they pay takes into account the time and money they expect, but you`ll also want it to reflect the likely increase in the value of the country. This can be difficult to predict, so sellers and developers often negotiate an overrun – an additional payment that reflects this increase. Overrun agreements allow the seller to share the actual increase in land value without inflating the base price paid by the developer. How overshoot agreements can increase your country`s profits 4. Think about the impact of the Stamp Duty Land Tax (SDLT). In addition to the purchase price, you agree to pay other sums to the seller at a later date. Before completion, you must make a fair assessment of the likely amount to be paid in the future.
You must include this information in the SDLT return and pay SDLT both on the base purchase price and on the estimated overrun after the end of your purchase. If it is not possible to carry out an appropriate assessment of the SDLT and the SDLT is conditional or not, you can submit a request for deferral of payment of the SDLT, but you must do so within a maximum of 30 days from closing. Subsequently, if you pay the seller more overruns than you estimated, you must complete an additional SDLT form and pay the additional tax at the time of payment of the overrun. . . .