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What are overage arrangements?

Land or buildings may be sold on terms that may require the buyer to make additional payment(s) to the seller in certain circumstances. For example, land may be sold on terms that require the buyer to make an additional payment to the seller if planning permission is granted for the construction of dwellings on the land. The additional payment may be referred to as an overage payment. Other terms that may be used include 'clawback', 'deferred consideration', 'slice of the action' or 'uplift'.

The details of an overage arrangement should be set out in the contract for the sale of the land or building. Overage arrangements can be mutually beneficial to both the buyer and the seller. The buyer can defer the overage payment(s) until the occurrence of the relevant event(s) and the seller can benefit from the future uplift in value of the land or buildings sold.

What is the VAT treatment of overage arrangements?

Notice 742A includes limited information about the VAT implications of overage