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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Removal or transfer costs: relocation companies: guaranteed sale price schemes: right to share of profits

Part 4 Chapter 7 ITEPA 2003

The terms of a guaranteed sale price scheme may say that if the employer or relocation company sells the property to a third party for more than the guaranteed sale price the employee is entitled to some or all of the profit. The right to share in future profits is a separate asset which has, or may have, a monetary value. The income tax position is:

  • the employee gets:
  1. the guaranteed sale price and
  2. the right to share in future profits
  • the employee gives:
  1. his or her property.

If the value of (a) and (b) is greater than the market value of (c) the difference is chargeable to tax as employment income.

The value of (b) is its money’s worth (see EIM00540), that is, the amount the employee could get by selling the right to someone else as soon as he or she received it. Note that in most cases the right to share in profits is limited to sales by the employer or relocation company within a fairly short period of time. So unless the housing market is rising very strongly at the time the right is granted it is unlikely that the value of the right will be significant.

When an actual payment of profits is received under one of these arrangements there are no income tax consequences. The receipt is a capital sum derived from the right. ESC D37 (seeCG64611) exempts the gain from capital gains tax to the extent that the gain on the property itself was exempted by private residence relief.