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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3823
Experience:  FCCA FCMA CGMA ACIS
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I am part of a shared freehold on 3 neighbouring properties.

Customer Question

I am part of a shared freehold on 3 neighbouring properties. The 3 of us have a Dormant Company. I am selling my property and have had a new lease granted. The premium on this lease is £45,300. The income will be split between the 3 of us. Will there be any tax payable either corporation or capital gains?
Also, will we have to cease as a Dormant Company for a year as we will have to declare this as income?
Thank you
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
For how long is this lease?
Who owns these properties, individuals of the company?
Customer: replied 2 years ago.

999 years.

The owner of each of the 3 properties has a share in the freehold. There are 2 flats and 1 detached house on the land.

We formed the dormant company for this in 2000.

Thanks for your help

Expert:  bigduckontax replied 2 years ago.
Length of the lease, please?
Customer: replied 2 years ago.

The new lease to be granted is 999 years. The other 2 properties have leases for above 900 years.

Expert:  bigduckontax replied 2 years ago.
Tax Insider says:
'For leases of more than 50 years, the premium is treated as a payment for a disposal of part of the property, giving rise to a capital gain in the hands of the landlord.'
A 999 year lease (or even a 900 year one for that matter) is effectively selling the property so all the premium would be a capital gain. However, companies are not subject to the Capital Gains Tax regime, all such gains merely forming part of the company's trading account. Under current rates the Corporation tax would be of the order of GBP 45.3K @ 20% = say 9K of Corporation Tax due. Thus there will be some 12K available to each of you which will have to be distributed by the company in some way which will in itself incur more tax in individuals' hands, presumably Income Tax.
I do hope I have shed some light on the position. A classic example of Benjamin Franklin's dictum that in life there are but two certainties, death and taxes!
bigduckontax and 2 other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.
Customer: replied 2 years ago.

The house sale is due to go through very soon. I have been asked when the corporation tax should be paid ie whether it should be withheld at the point of sale.

Thanks

Expert:  bigduckontax replied 2 years ago.
By whom, I am tempted to ask? Corporation Tax is payable by the company after the end of the accounting period as normal.

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