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Is the receipt of a dilapidations payment capital or revenue if the landlord subsequently sells the property?

I have a query regarding a client whom received a dilapidation payment on the termination of a lease. The payment was received in tax year 2014/15 and the original intention was to convert the property into flats. The property was subsequently sold in November 2016 and none of the wanted repairs, included within the dilapidation terms, had been undertaken prior to the sale. I am wondering whether the payment should be treated as capital or revenue for tax purposes. From HMRC guidance I note that they suggest if the property is sold that the payment could be treated at a capital payment. I am unsure if there are any reasons that would result in this treatment not being acceptable? Also if the payment is to be treated as capital a part disposal calculation will have to be performed, as the small exemptions do not apply. If this is the case would we require a valuation of the property at the date of the termination?

Anonymous (Private practice)

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