Overage vs ransom strip when selling

Mr.Jelly_2 · 4 October 2017 at 10:46PM

I am selling a quarter acre plot with a bungalow on it that backs onto agricultural land. The farmer would like to put 30 houses on this land which is currently outside the village envelope. The village has no neighborhood plan at present, and there would be local opposition as well as there not being any easy access to the fields. So the possibility of my plot being used to provide an access road to a new development is rather hypothetical. However, I would be irked if the land became a lot more valuable shortly after I had sold it.

This made me wonder whether some form of overage/covenant or ransom strip at the back of the plot could be used to avoid future regrets without too adversely affecting the sale price or incurring substantial legal expenses. Some online opinions I have read suggest that overage clauses can incur liabilities to extra capital gains tax for the seller and stamp duty for the buyer. On the other hand, setting up a ransom strip at the back of the plot might involve other legal and professional expenses and delays. Does anyone have any relevant experience or advice that could apply to this situation?

00ec25 · 5 October 2017 at 7:49AM

overage can incur either CGT or income tax depending on the exact circumstances

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg72852

a ransom strip would be a sale of land no longer forming part of a garden forming part of your main residence (I assume that is the current status of the 1/4 acre and bungalow?) and so would be sale of land subject to CGT

Davesnave · 5 October 2017 at 8:05AM

A ransom strip no matter how narrow, might put some buyers off. After all, how would you maintain it, and would you?

I live in the country, so I know that a wildlife corridor might have little impact, but if neglect allowed trees to establish that might block my view of that farmland, I'd be less pleased.

Also, the fact of a ransom strip's existence will make prospective buyers feel that the possibility of a new estate behind them is threat. They would infer that you know something, and of course you do, albeit currently just some neurological activity in a farmer's brain.

Ozzuk · 5 October 2017 at 8:37AM

Perhaps consider an uplift cause if the potential is that high, i.e. if land sold for access then a percentage is payable to you.

Would put a lot of people off though.

AdrianC · 5 October 2017 at 8:50AM

Yes, you may have to pay tax on the money you receive from an overage - but that tax is a percentage of the extra money that you receive...

I'm also with the line of thought that says this is simply going to make the sale harder, because it's going to raise the antennae of potential buyers.

If you think the farmer's going to develop, then simply approach the farmer and say "Would you like to buy this land?".

yorkie3 · 5 October 2017 at 9:19AM

Personally, I think you're being greedy. You're trying to have your cake and eat it. Either sell the land at its current value or retain it if you think it will increase in value. You are making no effort in increasing the value of the land yourself so I don't see why you think you're entitled to benefit from any uplift in value. Whenever I look at purchasing land and see ransom strips, uplift clauses or something similar, I just move on as I know it will be more trouble than it is worth.

Mr.Jelly_2 · 5 October 2017 at 9:42AM

Thanks for your replies everybody. I should have said this is a property I inherited, not my main residence, hence the possible impact of CGT and SDLT on the actual or estimated value of any overage/uplift.

I was hoping that if I retained ownership of a 2x50 foot strip at the back, then no disposal of land for that little plot would occur and so tax could only be levied on the larger plot without consideration of the ransom strip.

AdrianC · 5 October 2017 at 9:45AM

Mr.Jelly wrote: »

I was hoping that if I retained ownership of a 2x50 foot strip at the back, then no disposal of land for that little plot would occur and so tax could only be levied on the larger plot without consideration of the ransom strip.

Don't forget the legal costs in shifting that to a separate title - and the costs in establishing an extra boundary to delineate it, and then the time to maintain it and ensure it doesn't fall under an adverse possession claim...

Mr.Jelly_2 · 5 October 2017 at 9:55AM

yorkie3 wrote: »

Personally, I think you're being greedy. You're trying to have your cake and eat it. Either sell the land at its current value or retain it if you think it will increase in value. You are making no effort in increasing the value of the land yourself so I don't see why you think you're entitled to benefit from any uplift in value. Whenever I look at purchasing land and see ransom strips, uplift clauses or something similar, I just move on as I know it will be more trouble than it is worth.

Thanks for that! Wouldn't anyone with a family have a duty to maximize their return on any asset? Until we socialize land ownership and allocate it according to need, this is just what we do in this country.

I do take your point about putting people off though.

00ec25 · 5 October 2017 at 10:14AM

Ozzuk wrote: »

Perhaps consider an uplift cause if the potential is that high, i.e. if land sold for access then a percentage is payable to you.

Would put a lot of people off though.

that is the meaning of the word overage as used in the OP

00ec25 · 5 October 2017 at 10:20AM

Mr.Jelly wrote: »

Thanks for your replies everybody. I should have said this is a property I inherited, not my main residence, hence the possible impact of CGT and SDLT on the actual or estimated value of any overage/uplift.

I was hoping that if I retained ownership of a 2x50 foot strip at the back, then no disposal of land for that little plot would occur and so tax could only be levied on the larger plot without consideration of the ransom strip.

only the buyer pays SDLT, not the seller

when you sell the bungalow and its garden you will incur CGT based on the inheritance/probate value

if you retain and then sell a ransom strip that too will be subject to CGT as a separate land transaction not linked to the previous sale, bearing in mind the strip itself will obviously not be capable of being developed, so won't attract income tax, but will presumably sell for a large gain based upon its then status compared to its previous status a mere 50ft strip of isolated garden land

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Overage vs ransom strip when selling

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