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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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removal or transfer costs relocation companies: guaranteed sale price schemes: property not sold to employer nor to relocation company at first: example

Part 4 Chapter 7 ITEPA 2003

Facts

The employee joins the guaranteed sale price scheme on 1 September 2003.

She gives the relocation company authority to sell the property on her behalf, receives the guaranteed sale price £120,000 on 1 October 2003 and moves out. She does not enter a binding contract to sell the property to the relocation company.

Because no third party purchaser can be found the relocation company purchases the property for the guaranteed sale price on 1 October 2004.

The property is eventually sold to a third party on 1 February 2005 for £100,000.

The employer is responsible for meeting the relocation company’s interest costs and for making good any shortfall when the property is sold on.

Comment

Since the employee has not contracted to sell the property to the relocation company it follows that the receipt of the guaranteed sale price on 1 October 2003 is not the receipt of sale proceeds, but a loan chargeable under Part 3 Chapter 7 ITEPA 2003. She receives the benefit of the loan from 1 October 2003 to 1 October 2004. It may be eligible for exemption or reduction if the conditions in EIM03104 are met.

From 1 October 2004 to 1 February 2005 the employee has been provided with the benefit of the opportunity to sell her property. The employer is bearing the relocation company’s costs in this respect and they include interest costs, making good the loss of £20,000 (£120,000 less £100,000) suffered by the relocation company, and the appropriate proportion of the management fee. But by virtue of Section 326 ITEPA 2003 (see EIM03127 and EIM21662) we do not take a tax charge on these items.

If the employer funds any legal or other costs incurred by the employee in selling the property they will be exempt if the conditions in EIM03104 onwards are satisfied.