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Freehold Co - Enfranchisement - Sale of Lease

freehold enfranchisement - non-participating flats - treatment of gains on sale of leases

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I would appreciate some friendly guidance in this area - feel free to DM me :)

My client is part of an enfranchisement of the freehold of a block of flats using two companies:

  • Company 1 - are for those participating in the enfranchisement, so have contributed finanially to the freehold purchase (via a loan to the company) and own a share in the company.
  • Company 2 - are for those not participating financially. A loan company has instead purchased those particular freeholds.  The directors and shareholders are connected to the loan company.  

At the moment I am dealing with Company 2. During the year the company has sold leases to some of the flats, and more follow in the next year.  Am I correct in my understanding that the gains arising (sales received - leasehold base cost) are chargeable gains for corporaiton tax?

I'm a classic overthinker and have been going around in cirlces, so I'd appreciated any pointers on areas I may have overlooked or need further considearation. Also are any paricualr notes required for the accounts?

Thank you for your help and I encourage constructive comments. 








Replies (2)

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By Paul Crowley
21st Mar 2021 17:55

Too late now but better of to have all in one company.
Who owns the freehold?

Co 2 in an investment company and taxable on the sales it makes and on the ground rent being collected.

Flat owners are not members and have merely extended their lease

Co 1 should grant leases to the participators at the cost of the loans. The ground rent being peppercorn

The cost of flats has increased by the price paid to buy the extended lease.

But if both companies have a share of freehold then both need to be kept going.
I would not act unless I acted for both companies.

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By Paul Crowley
21st Mar 2021 18:02

Is the loan company really a loan company?
My guess is that these people put money up knowing there were profits to be made.

Changed my opinion

Would not act unless acting for all three companies

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