Client had carried out property development in partnership. The property qualified for tax based incentives and was suitable for occupation for a number of different commercial activity. The owner of the property adjacent to newly developed property indicated interest in acquiring the freehold interest in the property.
The issue for the partnership was payment of income tax and PRSI on the potential development profit on the sale of the freehold interest post completion of the development project. The purchaser wanted to acquire the relevant interest in the property to maximise the capital allowances available that would help defray the cost of financing the acquisition of the property.
Purchaser eventually agreed to acquire the property by way of short term lease with a call option to acquire the freehold interest in the property.
Capital gains tax treatment was applied by the partnership on the disposal of the property following the exercise of the call option.
Revenue reviewed the transaction and the preliminary opinion was the sale was within the scope of income tax. Following meetings and several submissions on the legal structure of the transaction it was agreed that capital gains tax treatment was appropriate to the particular circumstances of the transaction.