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  • Writer's pictureOliver Riley

Implications of SDLT when entering into Overage Agreements

As a solicitor in a rural practice, I often act for clients who have agreed to purchase land ‘subject to overage’. Also known as ‘clawback’, this is where a further payment contingent upon a particular event occurring becomes payable to the Seller. A common example of this would be where agricultural land is initially sold for a fixed price (say £14,000 per acre), but the transaction is made subject to a further sum(s) becoming due to the Seller should planning permission ever be granted within an agreed period for the development / change of use of that land. Overage would typically comprise a percentage of any uplift in value attributable to the planning permission granted.


The terms of such arrangements are bespoke to each transaction, and both Buyer and Seller must give careful consideration to them. Ideally, this should be given attention from the outset, when negotiating the initial terms of sale. This ensures key terms are agreed and helps prevent any disputes arising further along the conveyancing process.


One aspect of Overage commonly overlooked is SDLT (Stamp Duty).


When buying property / land, SDLT is calculated on the total consideration being given by the Buyer. Not only does this include cash consideration (i.e. the purchase price paid on completion to the Seller) but it also includes any ‘contingent consideration’.


Where Overage is concerned, this is the sum payable to the Seller when a future overage payment has been triggered.


For example, if an individual acquired a plot of land for £300,000 and agreed to pay a further £100,000 if they later obtained planning permission for development, the total consideration upon which the SDLT is calculated £400,000. The entirety of that liability is payable to HMRC within 14 days of completion.


When the future overage payment is subsequently triggered, if at all, a further return must then be made to HMRC. Depending on whether there has been an overpayment / underpayment of stamp duty, a refund / payment is then claimed / paid to HMRC.


If the amount of contingent consideration is uncertain, the Buyer can reduce their immediate SDLT Liability by applying to defer such part of their SDLT liability which is attributable to the contingent consideration.


Summary


Don’t squander the opportunity to get the key terms of the Overage correct from the outset and don’t forget to give consideration to all aspects of your purchase, including SDLT liability.


If you require advice in connection with any aspect of an Overage Agreement, do get in touch. My firm has an excellent agricultural / property department and the team are here to assist you.

For further information please get in touch with Oliver Riley on 01845 522324 (Thirsk).




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