Taxes Consolidation Act 1997 section 106

Tax treatment of receipts and outgoings on sale of premises

Section 106 deals with how rental income and property expenses are divided between the seller (vendor) and buyer (purchaser) for Case V tax purposes when a rented property is sold.

• When a property sale requires rent or expenses to be split between seller and buyer, each party is only taxed on their own share under Case V of Schedule D.
• If the seller receives rent that belongs to the buyer, the seller holds it in trust and is not taxed on that portion — the buyer is taxed on it instead.
• Where the seller pays expenses on the buyer's behalf, the buyer is treated as having incurred those expenses directly for tax purposes.
• These apportionment rules also apply where rent or expenses fell due before the contract was made, and extend to any person who takes over the rights and obligations of either party by assignment or otherwise.