Share this content

CGT on extension of a lease

CGT on extension of a lease

Didn't find your answer?

We have a client who owns a lease of a flat, the lease is being extended to 999 years, each leaseholder owns a share in the freeholder (company) the freeholder is owned by the leaseholders, my take on it is that the current lease is being surrender and a new lease granted giving rise to a disposal and CGT, all I have had so far is a two line email outlining the information, no figures, I know the address of the flat and it is in a very high value area. The flat isnt the persons residence and never has been, they have owned it for many years and the value growth will have been large in the last thirty years. Whilst so far I dont have a huge amount of detail I was wondering as to wether I am on the right lines with suspecting a CGT issue. Thanks

Replies (7)

Please login or register to join the discussion.

Northumberland flag
By MJShone
28th Sep 2021 10:36

You're right to think about CGT. Don't forget to look at ESC D39 and HMRC's CGT manual eg

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg71240

Thanks (1)
avatar
By The Dullard
28th Sep 2021 10:47

From the leaseholder's point of view, under ESC D39, referred to above, there doesn't have to be a disposal of the old lease.

From the company's point of view there is a disposal, and, if market value isn't being paid for the lease extension, there's a distribution to the leaseholder, as a member of the company, taxable as income.

If market value is paid, the company will probably have excess cash that it needs to distribute to its members.

I have no idea why it would be set up this way. If the company were mere nominee, the leaseholders would be disposing of something that they've already got (a time slice of the freehold) to themselves, which wouldn't be a CGT or income tax event for anybody.

Thanks (1)
avatar
By Paul Crowley
28th Sep 2021 11:12

Who paid what to whom
There should be a cost on buying the lease to add to CGT relevant costs

But organisers of this should have taken advice, as above
But still works if the money lent to company to buy the freehold is then used by members to buy their leases

The problem comes when all money into the company is treated as share capital

Thanks (1)
avatar
By CW2012
28th Sep 2021 11:24

Thanks, time now to get a bigger picture of what's going on and what went on, its never straight forward and to make things even better the solicitors writing up the new leases want a reply by the end of this month.

Thanks (0)
Replying to CW2012:
avatar
By Michael Davies
29th Sep 2021 09:48

CW2012 wrote:

Thanks, time now to get a bigger picture of what's going on and what went on, its never straight forward and to make things even better the solicitors writing up the new leases want a reply by the end of this month.


That’s a bit of a nerve given how slow lawyers are.
Thanks (0)
avatar
By More unearned luck
29th Sep 2021 19:01

Be sure of your facts. Does the company own the freehold reversion beneficially or as nominee for the tenants? If the former, the property will be in the BS but not if the latter case - if the accounts have been correctly drafted.

This might be helpful:
https://www.taxadvisermagazine.com/article/tax-traps-tenant-owned-flat-m...

Thanks (1)
Replying to More unearned luck:
avatar
By CW2012
14th Oct 2021 20:59

Thanks that was a really helpful article

Thanks (0)
Share this content