Free lease extension – Is there a tax liability for this?

Free lease extension – Is there a tax liability for this?

13:38 PM, 8th September 2022, About 4 weeks ago 5

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Hi all, I need some advice, please. I own a flat in a house that was originally split into two individual flats back in the 1980’s. I own one flat and the Freeholder owns the other.

I am in the process of selling the flat and the Freeholder has agreed to allow me to extend the Lease with their being NO premium charged.

The term has not yet been agreed but it will either be an extension of the remaining 60 years taking it to 150 (60 + 90) or 999 years.

Would there be any tax to be paid even if there is no associated premium?

Many thanks

David



Comments

Laura Delow

9:37 AM, 9th September 2022, About 4 weeks ago

If you're being charged no premium to extend the lease, go for it before the freeholder's solicitor tells him/her he's mad not to charge. I imagine at the very least the freeholder will expect you to pay his/her legal fees. Assuming it's not your main residence, CGT will be due when you sell. The gain will need to be established based on what it sells for & any associated selling costs less the price you bought it for & associated buying costs & any capital expenditure whilst owned such as improvement expenditure & any lease extension costs.

SCP

10:07 AM, 9th September 2022, About 4 weeks ago

You are right to ask your question. You are making a gain. Is there a CGT liability?
There is an extra statutory concession which exempts any charge to CGT.
I forget the number of the ESC.
No doubt our solicitor members can oblige.

Simon Lever - Chartered Accountant helping clients get the best returns from their properties View Profile

13:16 PM, 9th September 2022, About 4 weeks ago

Tax is only due when there is a realised income or gain.
From what you have said there would be nothing realised until such time as the property is sold.
With a longer lease in place the value of the property increases and therefore the capital gains tax on the disposal will be higher than if the lease extension had not happened.
There is no capital gain if the property has been your principal private residence (PPR) for the whole period of ownership.
If only your PPR for part of the period then the gain is apportioned on a time basis with various allowable exemptions.
If it has not been your PPR for the whole period then don't forget that you will have 60 days from the date of completion to make a return to HMRC and pay any tax due.

Dennis Forrest View Profile

8:54 AM, 10th September 2022, About 4 weeks ago

Reply to the comment left by Simon Lever - Chartered Accountant helping clients get the best returns from their properties at 09/09/2022 - 13:16
Also no CGT to pay if you make the property your main residence and live in it for at least 2 years before you sell.

Been there View Profile

10:06 AM, 11th September 2022, About 4 weeks ago

Thanks for the reminder of the CGT due within 60 Days. If you don't pay in time you face penalties: My last previous sale was pre-60day limit; this time around No-One told me "hey, you know you've got to settle the CGT bill within 60 days". The Conveyancing Solicitors never said and even the agents didn't know about it! (It's all settled now). For years I have practiced the method of selling one unit to take profit in a particular tax year, claim GGT relief on the profits and replace the unit with another. The methodology has allowed me to pay off 100% all mortgages so I'm not earning to pay the banks nor the government - S24 is dead to me.

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