SE03137 - removal or transfer costs relocation companies; guaranteed sale price schemes - property not sold to employer nor to relocation company at first - example

Schedule 11A ICTA 1988

Example 5: Property not sold to employer/relocation company at first; relocation company later buys property

Facts

The employee joins the guaranteed sale price scheme on 1 September 1998.

She gives the relocation company authority to sell the property on her behalf, receives the guaranteed sale price £90,000 on 1 October 1998 and moves out. She does not enter a binding contract to sell the property to the relocation company.

Because no third party purchaser can be found the relocation company purchases the property for the guaranteed sale price on 1 October 1999.

The property is eventually sold to a third party on 1 February 2000 for £70,000.

The employer is responsible for meeting the relocation company's interest costs and for making good any shortfall when the property is sold on.

Comment

Since the employee has not contracted to sell the property to the relocation company it follows that the receipt of the guaranteed sale price on 1October 1998 is not the receipt of sale proceeds, but a loan chargeable under Section 160 ICTA 1988. She receives the benefit of the loan from 1 October 1998 to 1 October 1999. It may be eligible for exemption or reduction if the conditions in SE03104 are met.

From 1 October 1999 to 1 February 2000 the employee has been provided with the benefit of the opportunity to sell her property. The employer is bearing the (relocation company's) costs in this respect and they include interest costs, making good the loss of £20,000 (£90,000-£70,000) suffered by the relocation company, and the appropriate proportion of the management fee. But by virtue of ESC A85 ( SE03127 and SE21662) we do not take a tax charge on these items.

If the employer funds any legal or other costs incurred by the employee in selling the property they will be eligible for exemption if the conditions in SE03104 onwards are satisfied.