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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Land: disposals: proceeds lent back to purchaser

If the whole or part of the proceeds of the sale are lent by the vendor to the purchaser there have been two separate transactions

  • a sale of the asset by the vendor to the purchaser with full consideration paid; and
  • a grant of a loan by the vendor to the purchaser.

This applies even though the full amount of the purchase price and the amount of the loan have not physically changed hands. This was confirmed by the Courts in Coren v Keighley, 48TC370, where it was held that where two cross-demands for money immediately payable are honestly set off against each other, each set-off constitutes payment in cash.

In the above circumstances, the vendor has received full consideration for the asset. It is not appropriate to allow payment of the tax by instalments.

If it is contended that the full sale proceeds were not received, you will need to examine all of the relevant documents. These should include the conveyance and the mortgage deed or legal charge. These documents will confirm whether there were two separate transactions.

The chargeable gain or allowable loss on the sale of the land will not be affected by any payment or default in payment on the loan, unless ESC/D18 applies, see CG72830+.