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CGT-3% Overage Payment of Flat Sale Not Allowable?

Sale of Long Lease of Flat and Compulsory 3% Overage Payment (Sinking Fund) CGT Treatment?

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Client just sold main residence flat for £300,000 where occupied as main residence flat for only a part duration of ownership. He went into a nursing home quite a few years ago.

Under the lease agreement, on sale of the flat 3% of the gross sale proceeds has to be paid to the property management company. The property was sold for £300k so the overage payment was £9,000.

For this block of flats "overage payment" has to be read as a "sinking fund payment" for future repairs etc.

I cannot see that the £9,000 is a CGT deduction from the sale proceeds. Anyone disagree?


Replies (5)

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By bettybobbymeggie
22nd Jan 2019 08:34

I vote that it would be allowable, if my interpretation of TCGA s38(2) is correct.

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Replying to bettybobbymeggie:
By Waves
22nd Jan 2019 08:57

What a fascinating interpretation. How have you arrived at that conclusion?

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Replying to Waves:
By bettybobbymeggie
22nd Jan 2019 09:27

I'd be inclined to consider it under "costs of transfer". I'd be interested in your view, however.

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By Montrose
23rd Jan 2019 15:48

A different approach. Client could not complete the transaction without paying the freeholder £9000. Is that not a "cost of transfer"?

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Hallerud at Easter
23rd Jan 2019 16:12

I do not understand property law in England, so bear with me.

Does the lease holder have some form of "interest" in the property management company whilst a lease holder or is this 3% going to a total third party i.e. do leasehold owners benefit from the funds in the Property Management Company?

On his original purchase of the lease interest did he acquire such interest in the property management company, including a partial interest in the monies the vendor to him needed to pay from the funds received from him?

In effect did part of his original purchase price he paid go into the Property Management company via the vendor to him making said 3% payment.

Is therefore what he originally paid when he purchased the leasehold itself all deductible from his now sale proceeds, seems to me there would need to be a matching concept so if 3% of selling price were a deduction would 3% of purchase price he originally paid also require deduction from claimable costs?

None of above applies if the 3% actually totally departs to A N Other as a frictional cost, but if a closed system there might be some incongruity reducing the sales proceeds by the figure paid over whilst not adjusting the purchase figure.

As stated at outset, mere musings with no real understanding of what happens with flats etc in blocks south of the border.

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