Income Tax (Trading and Other Income) Act 2005 section 284

Sales with right to reconveyance

Section 284 deals with the tax treatment of property sales where the terms require or allow the property to be bought back by the seller (or a connected person) at a lower price within 50 years, creating a deemed property business receipt.

• Where property is sold with a right of reconveyance within 50 years at a price lower than the sale price, the seller is treated as carrying on a property business transaction and receiving a taxable amount
• The deemed receipt is calculated using the formula E × (50 − Y) / 50, where E is the excess of the sale price over the reconveyance price and Y is the number of complete 12-month periods (excluding the first) between sale and earliest reconveyance date
• The deemed receipt is brought into account as income of the seller's UK or overseas property business in the tax year the property is sold
• If the reconveyance occurs within two years of the sale, the full excess of the sale price over the reconveyance price is taxable with no reduction