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constructed and specialist tax advice should be sought at the time any overage payment is made to confirm its VAT classification.
 Income Tax and “slice of the action” schemes: a seller is likely to want the sale of the land and the overage to be treated as a disposal for capital gains tax purposes and will not want the overage to be treated as income. If the overage is drafted in a way that the seller receives a percentage of the development profit then, in effect, the developer is passing on a share of its development/trading profit and the receipt of this will be treated as income in nature and will be caught by section 517A to U of Income Tax Act 2007 (individuals) (“Income treated as arising when gains obtained from some land disposals”) or section 3560A to T Corporation Tax Act 2010 (companies) as trading profit in a capital formiii. It is considered that the rules do not apply to overage payments that are due solely on the grant of planning (as not derived from profit) and there may be ways of addressing this issue if the land being sold is part of the seller’s principal private residence.
 Direct tax (CGT/corporation tax on chargeable gains): If the land is a capital asset of the seller, the tax treatment depends on whether the overage payment is ascertainable.
Where the payment is ascertainable but contingent (for example, a fixed sum payable if planning permission is granted), the seller must take into account the amount of that payment when calculating its liability to corporation tax on gains or capital gains tax (CGT). This is regardless of the fact that the payment is not made until a later date when the contingent event occurs (section 48, Taxation of Chargeable Gains Act 1992 (TCGA 1992)). If it becomes clear that the contingent event will not occur, so that the overage will not be paid, the seller can make a claim for repayment of tax. The seller can defer payment of the tax in certain circumstances (section 280, TCGA 1992).
If the overage payment is unascertainable (for example, an amount to be calculated by reference to a formula that takes into account the price achieved on a future sale of the land), the seller's chargeable gains are calculated by taking into account the market value of the overage payment and any other consideration provided to the seller (section 48, TCGA 1992). The right to receive the overage payment is a separate asset (a chose in action) acquired by the seller for
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