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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Need some advise on how to treat a premium a landlord client

Resolved Question:

hi,
need some advise on how to treat a premium a landlord client received from a tenant.
is this seen as a another income like rental income and treated exactly like that in tax comp. the lease was for 20 years if that helps.
regards
Submitted: 11 months ago.
Category: Tax
Expert:  TonyTax replied 11 months ago.

Hi.

Let me take a look at this and I'll get back to you.

Expert:  TonyTax replied 11 months ago.

Assuming you have granted a 20 year lease (less than 50 years) out of a freehold property, part of the premium will be chargeable to Capital Gains Tax and part to Income Tax.

If you look at Example 2 here and here, you will see how the calculation is done. You will need to know the cost of the property when you bought it, the value of the reversionary interest in the property as well as the amount of the lease premium and the length of the lease.

I'd be happy to do the calculations if you can provide the figures.

I hope this helps but let me know if you have any further questions.

Expert:  TonyTax replied 11 months ago.

I'm just following up to find out if my answer helped or if you have any further questions.

TonyTax and other Tax Specialists are ready to help you
Customer: replied 11 months ago.

that's great.

but what does revisionary interest mean and how do I calculate it.

thanks

Expert:  TonyTax replied 11 months ago.

A reversionary interest is the value of the freehold now that it is subject to a 20 year lease. Clearly, if you sell a freehold property with no lease attached, you will get more for it than if it was subject to a lease, though rental income may help to dilute the effect of the lease on the reversionary interest value. A land agent will value the reversionary interest for you.

Expert:  TonyTax replied 10 months ago.

Hi.

I'm just following up to find out if my answer helped or if you have any further questions.

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