How an overage or clawback is taxed depends on whether the future amount could be worked out when the property was sold. A fixed sum payable if planning permission is granted is taxed in full on the original sale under section 48 of the Taxation of Chargeable Gains Act 1992, with relief if it is never paid. A share of a future uplift in value is unascertainable: the right is valued and added to the sale proceeds, and each later payment is a separate disposal of that right.

What are overage and clawback arrangements?

Overage, also called clawback, lets a seller share in value created after the sale, usually when the buyer obtains planning permission, builds, or sells on. The contract might promise a set figure for each house approved, a percentage of the increase in value once permission is granted, or a share of the buyer’s development profit. HMRC’s Capital Gains Manual at CG72800 says the contract has to be read as a whole: the consideration clause, the definitions and any later sections, because valuable consideration can take forms that are not described as price.

Is the overage ascertainable or unascertainable?

This is the first and most important question. CG14881 says future amounts are ascertainable if at the date of disposal they are known, can be calculated, or can be found by making up an account where all the events fixing the amount have already happened. Anything that depends on events after the sale is unascertainable (CG72850). Two points from the manual often surprise people:

  • A fixed sum that is contingent is still ascertainable. CG15089 gives the example of consideration that is fixed in amount but payable only if planning permission is granted: section 48 brings the whole amount into the original computation.
  • A cap does not make an open ended payment ascertainable. CG72850’s example is £250,000 now plus half of the buyer’s profit on a later sale, capped at £100,000: the further payment is still unascertainable.

How is a fixed contingent overage taxed?

Section 48(1) requires the consideration to be brought into account without any discount for postponement and, in the first instance, without regard to the risk that it is never received or that the right to it is contingent. The whole amount is taxed in the year of the sale. If it later proves irrecoverable, for example because permission is refused and the payment never becomes due, a claim can be made to adjust the computation and repay or discharge the tax.

This can create a cash flow problem. If the price is payable by instalments over more than 18 months, section 280 allows the tax to be paid by instalments over up to 8 years, but HMRC treats it as unavailable where the deferred amount is unascertainable or where the seller is paid in full and lends money back (CG72800).

Distinguish a contract that is itself conditional on planning permission. Under section 28(2) a conditional contract is not a disposal until the condition is satisfied, so the whole sale moves to that later date. See our guide to when a disposal happens.

How is an unascertainable overage taxed?

CG72850 applies the principles from Marren v Ingles and Marson v Marriage:

  1. On the sale, the proceeds are the money received plus the market value of the right to future payments. That right is a chose in action, a chargeable asset in its own right.
  2. The value placed on the right becomes its base cost.
  3. When a payment is received it is a capital sum derived from the right under section 22, so each payment is a disposal or part disposal of the right (CG14970). Where several payments are expected, the remaining right has to be valued each time to apply the part disposal formula.

The court in Marson v Marriage, which concerned a sale of 47 acres with £7,500 payable for each acre the buyer could develop, held that the later payment was not ascertainable because an alternative payment applied if the site was compulsorily acquired.

How is the right to overage valued?

For property in the UK, HMRC refers valuations of the right to the Valuation Office Agency (or its Northern Ireland equivalent), after first trying to agree with the taxpayer what is to be valued (CG72850). The Valuation Office Agency’s practice note 3 shows the typical method: estimate the likely number of approved units and when permission will come, apply the agreed rate per unit, then discount to present value with a rate that reflects the risk. In its illustration a farmer receives £100,000 for agricultural value plus £10,000 per unit consented; assuming 200 units in 10 years and a 25% discount rate, the right is valued at about £215,000.

The note makes a practical point: if the overage is eventually paid, the total gain over both disposals is broadly the same whatever value is used at the start, but the timing and the rate of tax differ. A high value brings more gain forward; a low value pushes more into later years. Our guide to valuations for capital gains covers how valuations are agreed with HMRC.

Worked example

Illustration only. Rachel sells a paddock in 2026 to 2027 for £200,000 plus 30% of any increase in value if planning permission is granted within 10 years. Her base cost is £50,000. A valuer puts the overage right at £40,000.

Event Computation Gain
Sale, 2026 to 2027 £200,000 plus £40,000 less £50,000 £190,000
Overage of £150,000 paid in a later year £150,000 less £40,000 base cost of the right £110,000
Alternative: permission never granted Right ends worthless, base cost £40,000 £40,000 loss

If the right ends worthless, section 24(1) treats its extinction as a disposal, giving the £40,000 loss. Normally a loss can only be set against gains of the same or later years, but section 279A lets individuals (not companies) elect to treat a loss on a right to unascertainable consideration as accruing in the earlier year in which the original gain arose. Rachel could carry the loss back against the 2026 to 2027 gain. The election is irrevocable under section 279D. For general loss rules see our guide to capital losses.

Do reliefs on the original sale cover the overage?

No. CG14970 states that the disposal of the right will not qualify for any relief due or claimed on the original asset. Its examples are a company that rolled over the gain on its premises, which cannot roll over the later receipt because the right is not a qualifying asset, and an individual whose business sale qualified for Business Asset Disposal Relief, whose later receipts do not qualify for further relief. Plan on the basis that overage receipts are taxed at the normal rates for the year they are received.

Could the overage be taxed as income instead?

CG72850 tells HMRC officers to consider the rules on profits from dealing in or developing UK property in Part 9A of the Income Tax Act 2007 (Part 8ZB of the Corporation Tax Act 2010) where a sale provides for further consideration on a future event. Where those rules apply, the gain arising after the first intention date, when it was first intended that the site would be developed or sold for development, is taxed as trading income. In HMRC’s example, a farmer who sold to a developer for £1 million plus a share of profits, with a value of £1.4 million at the first intention date, paid Capital Gains Tax on £1.4 million less cost, and the remaining £1.1 million of total receipts was taxed as income. The rules and the exemption for the earlier capital period are explained in our guide to property dealing anti avoidance rules.

What mistakes come up most often?

  • Treating a fixed sum payable on planning permission as taxable only when received. Section 48 taxes it on the sale.
  • Reporting an unascertainable overage receipt as extra proceeds of the original sale, instead of a disposal of the right with its own base cost.
  • Forgetting to value the right at the date of sale, leaving no base cost when the payment arrives.
  • Assuming rollover or Business Asset Disposal Relief claimed on the sale extends to the overage.
  • Missing the section 279A election when the right expires worthless.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.