Tax issues relating to options to buy land

Option agreements are frequently used in land transactions in particular when there is some speculation regarding the potential future value in respect of the underlying land for instance whether the land can be developed. Using options provides for flexibility or deferral regarding the timing of the land acquisition for the developer or house builder while giving the seller some certainty about the value they can realise and also the hope of an eventual land sale.

Whether an option agreement is the most suitable method by which to undertake the transaction will need to be determined by the commercial factors surrounding the transactions as well as the tax position of each of the parties involved. However it is often the most straightforward practical way to approach a land sale that has development potential.

What is an option agreement?

An option is in essence a contract between...