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Hello, I'm Keith and happy to help you with your question
How the world moves on! When my parents bought their leasehold house in 1949 it only 32 years to run on the lease and they had no problem getting a mortgage and that was years before the Leasehold Reform Act!
I am in a slight degree of confusion here. Are you speaking for you or the lessee, please confirm. If it is you I have an answer ready.
Thank you for your speedy response
I am speaking as the freeholder. Any tax liability would ofcourse be down to me
I gave you the info from both sides
Look forward to hearing further from you
Hi H If you look at HMRC information site PIM1205 it is explained there. If you grant a long lease the premium you receive is subject to tax. As Benjamin Franklin once famously said 'In life there are but two certainties, death and taxes!'
There are two ways premiums are taxed. If they are for leases under 50 years they come under Income Tax rules. They are taxed either as trading income or property income. The longer the lease granted the more goes into the property pot. However, if the lease is over 50 years the premium is taxed under Capital Gains Tax rules (CGT); the authority for this is s. 534, ICTA, 19688 and s.227 ITTOIA, 2005. There remain but 3 days of the current tax year so I will assume the change be in the next tax year. In 14/15 you have an annual CGT allowance of 11.1K leaving 8.9K to be taxed at 18% or 28% depending on your personal income level. You might be entitled to Entrepreneur's Relief which would reduce the CGT to a flat rate of 10%.
Worst case scenario is a tax bill of some GBP 2500.
not sure I agree
firstly there is a further month to go the end of the tax year!
secondly, a proportion of the cost plus indexation (if appropriate) is deductible from the sale proceeds
thirdly and more importantly, I have heard there is a concession whereby if a lessee serves a Section 42 Notice under the 1993 Act, there is no CGT as the sale is compulsory by Statute and cannot be avoided
In the light of the above, please review your reply
You are correct in the time frame, sorry for the mental aberration there.
There is no indexation available in CGT. This was abolished some years ago. However any costs incurred in the grant of the lease extension can be deducted from the gain.
An extension under s.42 may be compulsory, but you have received a premium and that is a capital gain which is taxable. A parallel example is if you have shares in a company compulsorily taken over (eg when a bidder has over 90% of the equity) you are forced to sell, but if you have made a gain it is still subject to CGT.
notwithstanding indexation was abolished in c 1998, I think you will find it is still available for the period 1985 (date of purchase) to the date it was abolished
you should be aware there is roll-over relief provided the proceeds are re-invested in "land" either twelve months before the premium is received or upto three years later
With respect your parallel example is not comparable - in my case it is by statute. In your example it is a mere business matter only
I checked this out subsequent to your first reply!
ok down and out thanks