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HMRC internal manual

Property Income Manual

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HM Revenue & Customs
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Deductions: specific items: apportionment on sale or purchase of let property: examples

Example 1 - rent in advance received by vendor in trust for purchaser

On June 1 2006, Company A contracts to sell and Company B to purchase Black Acre which is let at a rent of £100,000 per annum payable quarterly in advance on the usual quarter days (Lady Day (March 25), Midsummer Day (June 24), Michaelmas (September 29) and Christmas Day (December 25)). Completion is to take place on 31 July 2006 and the contract provides that Company A is entitled to the rent up to and including that date.

Company A is treated as becoming entitled on 24 June 2006 to rent of £9,794 for the 38 days from 24 June to 31 July 2006. The remaining £15,206, being rent for the 59 days from1 August to 28 September 2006, was allowed by Company A to Company B (that is deducted from the purchase price) and is treated as rent to which Company B became entitled on 1 August 2006).

Example 2 - apportionment of rent received before contract date

The facts are the same as in example 1 except that the contract was made on 1 July 2006, which is after the rent which required to be apportioned had fallen due.

The consequences for tax purposes are the same as in example 1.

Example 3 - receipt or outgoing payable in arrear after completion

On 1 October 2006, Company A contracts to sell and Company B to purchase White Acre which is let at a rent of £8,000 per annum payable quarterly in arrear on the usual quarter days. Completion is to take place on 1 December 2006 and the contract provides that Company A is entitled to the rent up to and including that date.

Of the quarter’s rent receivable by Company B on 25 December 2006, £1,448 (for the 63 days from 30 September to 1 December) is apportioned to Company A and treated as rent to which company A becomes entitled on 1 December 2006. Company B is treated as becoming entitled to rent of £552 (£2,000 less £1,448) on 25 December 2006.

Example 4 - delay in completing

The facts are the same as in example 3 except that a ground rent of £400 per annum is payable quarterly in arrear on the usual quarter days, and that completion actually takes place on 15 January 2007. Company B pays the quarter’s ground rent due 25 December 2006 on 31 December 2006.

The rent receivable is dealt with as in example 3, the delay in completion not affecting the apportionment in accordance with the terms of the contract.

Of the quarter’s ground rent payable by Company B on 25 December 2006, an amount of £72 (for the 63 days from 30 September to 1 December) is apportioned to Company A and treated as ground rent payable and paid by Company A on 1 December 2006. Company B is treated as liable to pay ground rent of £28 on 25 December 2006 and as having paid that amount on 31December 2006 (the date on which Company B paid the ground rent).