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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4091
Experience:  FCCA FCMA CGMA ACIS
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A company buy a property at £1m and leases the property to

Customer Question

a company buy a property at £1m and leases the property to the wholly owned subisiary to £2m
Does the company need to pay capital gain tax
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.

How long is the lease, please? Once I know this I will be in a position to assist.

Companies are not liable for Capital Gains Tax, all gains form part of the trading income for the Corporation Tax computation..

Customer: replied 2 years ago.

lease is for 99 years

Expert:  bigduckontax replied 2 years ago.
The whole premium would be classed as a capital gain as the lease is over 50 years. However, as I have explained companies are not exposed to Capital Gains Tax so the premium would form part of the other company's trading.
In taxation terms it is, in any event, the proverbial lemon as within company groups profits and losses of individual companies can be exchanged upwards, downwards and sideways to relieve Corporation Tax.
The company buying the property makes an item of capital expenditure which will reflect in the balance sheet [Debit Property, Credit Bank/cash] whilst the premium coming in is income which, in any event as I have explained, can be offset through group relief.
I do hope that I have assisted you with your inquiry.