Income Tax (Trading and Other Income) Act 2005 section 285

Sale and leaseback transactions

Section 285 deals with the tax consequences when a property is sold and then leased back to the seller (or a connected person) at an undervalue, creating a deemed taxable receipt.

• Where land is sold with terms providing for a lease back to the seller or a connected person within 50 years, and the sale price exceeds the combined value of any lease premium and the reversionary interest, a taxable receipt arises
• The deemed receipt is calculated using the formula E × (50 − Y) / 50, where E is the excess of the sale price over the premium and reversion value, and Y is the number of complete years (after the first) between the sale and the earliest leaseback date
• The taxable amount is treated as a property business receipt in the tax year of the sale, forming part of the seller's UK or overseas property business as appropriate
• The provision does not apply if the lease is actually granted and begins to run within one month of the sale

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