Tax efficiency

[archeraddict]

I own a 14 acre piece of land, with 2 other friends. A neighbour wants to buy it but, so that we can stay onthe land for the next 4 years or so, he suggests paying over 42 months. His suggested timetable is to exchange contracts in March and pay a 10% deposit (6 thousand) then 20 monthly 'rental' payments of 3 thousand per month over 24 months (with 2 months payment holidays each year)and then make 18 monthly payments of 3 thousand a month with 'completion at the final payment of the 54 thousand pound balance. So effectively, he would be buying it for 60 thousand pound and rent it it to make up the 60 tousand pound difference. (We had agreed a sale price of 120 thousand pounds). We bought the land in May '05 for 40 thousand and have put stables, storage buildings and post and rail fencing since. I really wonder why he is suggesting the 'rental' bit and if it would be better to just call it a sale over 42 months and pay straight capital gains rather than income tax. However, as it is complicated, where do we stand with capital gains allowances or is it still effectively an income, even though it is being sold. VERY MANY THANKS FOR ANY ADVICE!

[themas]

You need advice from an accountant who specialises in CGT & related matters. You should also use a very competent solicitor to make sure that the documentation is watertight.

[fredpuli47]

Absolutely what themas says!

A lot may depend on your personal circumstances anyway.And, in the back of any cynic's mind, is the thought that the Revenue will treat this transaction as being artificial, a scheme to avoid tax and having no other principal or beneficial purpose, in which case they'll ignore it and tax at whatever the rate should have been without the scheme.

[archeraddict]

Many thanks. I have passed his proposals to an accountant, but wondered what you wise people thought. As for avoiding tax - well I guess we all want to to that, but it wasn't our suggestion. We are not ready to sell at the moment and I think the neigbour feels it is a way of securing the land, rather than us selling on the open market in 3 or 4 years time. I have no idea what his other motives are.
Cheers.