Costs, SDLT and tax

VAT on Overage Payments

PropertyVAT Team · Updated 21 October 2026 · 3 min read

Overage is the payment that arrives long after everyone has moved on — triggered by planning consent, a change of use, or a sale above an agreed threshold, sometimes a decade after completion.

By then the deal team has dispersed and the VAT question is being answered by people who were not there.

The general position

Overage is normally further consideration for the original supply of land. So it usually takes the same VAT treatment as the original sale.

The practical consequence: whoever handles the overage needs to know how the original transaction was treated. That record has to survive the years in between.

Why it catches people out

The documents are old. The overage deed was negotiated years ago; the VAT position may not be stated in it, or may be stated ambiguously.

The people have changed. The finance director who understood the structure has left. The solicitor's file is archived.

The sums are large. Overage on a site that has gained residential consent can be a substantial proportion of the uplift. Twenty percent of that is not a rounding error.

The cash requirement is sudden. Overage falls due on a trigger event, not on a planned date. A buyer facing an unexpected 20% on a seven-figure overage payment has the same problem as on a completion — with less warning.

Deal with it in the overage deed

The reliable fix is drafting, at the time the deed is made:

1. State whether the overage is exclusive or inclusive of VAT. An ambiguous clause is argued about when the trigger occurs.
2. Record the VAT treatment of the original sale, so future readers do not have to reconstruct it.
3. Oblige the seller to issue a valid VAT invoice if VAT is chargeable.
4. Deal with what happens if the VAT position changes between completion and the trigger event.

Clause one is the common failure. "Plus VAT if applicable" is not a position — it defers the argument rather than resolving it.

The tax point

A tax point for the overage generally arises when the payment becomes due or is made, or when a VAT invoice is issued.

That matters because it determines which return the VAT belongs in, for both parties, and when the payer can reclaim.

Obtaining the invoice, years later

If VAT is charged, the payer needs a valid VAT invoice to recover it — the same prescribed particulars as on any other purchase.

Securing that from a seller who sold the land eight years ago is considerably harder than securing it at completion. The company may have been restructured or dissolved; the people may be gone.

This is the practical reason the obligation belongs in the deed. An existing contractual obligation gives you something to point at; goodwill alone does not.

For the payer

• Budget on the basis that VAT may apply, where the original sale was standard-rated.
• Establish the position before the trigger event, not after the demand lands.
• Keep the original transaction records — the contract, the VAT invoice, the option to tax documentation.
• Plan the funding. Overage is lumpy and often arrives alongside other costs of the event that triggered it.

For the recipient

• Know whether you must charge VAT, and account for it correctly.
• Issue a valid VAT invoice promptly where it is due.
• Keep the original file, including your option to tax, for the life of the overage period.

This guide is general information, not tax advice. Overage VAT depends on the original transaction and the deed — take specialist advice before the trigger event.