'Slice of the action' contracts are so called because they
confer upon a landowner (who holds the land as an investment) the
right to share in the proceeds of any subsequent development by the
purchaser. In these cases the contract for sale of the land to a
builder or developer provides for consideration that is, in whole
or in part, contingent upon the successful development of the land.
A common arrangement is for the landowner to receive a fixed
sum at the time of the disposal, plus a percentage of the sale
proceeds of each building subsequently constructed by the purchaser
on the land.
Such 'slice of the action' contracts fall within ICTA88/S776.
The activity carried on by the purchaser, who acquires, develops
and sells the land, is a trading activity. The vendor, in entering
into the slice of the action contract, is able to share in the
proceeds of that trading activity. However he cannot be assessed
under Schedule D Case I because the vendor is not a builder, the
contingent consideration is a capital receipt on the disposal of a
capital asset. This constitutes the avoidance, which may be
unwitting, that ICTA88/S776 targets.
We accept that the fixed initial payment is not caught by
ICTA88/S776 (2)(c), since it is not contingent upon the
development. We argue that the contingent part is within
ICTA88/S776 and Page v Lowther [1983] 57TC199 provides the
authority for applying Section 776 in these circumstances.
An element of the contingent payment may not arise as result
of the development and therefore remains within the charge to
capital gains tax (see
BIM60360).
