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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4091
Experience:  FCCA FCMA CGMA ACIS
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I am one of four freeholders in a house in London. There is

Customer Question

I am one of four freeholders in a house in London. There is one leaseholder, who wants to extend his lease and also buy into the freehold. I understand that we have to set up a management company for this and the other freeholders are amenable to this idea.
The leaseholder has offered £93,000 for the lease extension to the four freeholders. There are four freehold flats - two large and two small.
Would that sum be split equally between the freeholders, regardless of the size of their flats?
Is it more cost effective to receive that sum individually from the leaseholder or for the money to go into the management company and then be paid out to the individual freeholders?
I am setting up a small business and expect to report virtually no taxable income this year - would it be better for me to receive the sum direct, rather than from the management company?
Thanks for your help.
Tony Roddam
Submitted: 2 months ago.
Category: Tax
Expert:  bigduckontax replied 2 months ago.

Hello Tony, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

My initial exposure to the workplace in the 60s as a trainee valuation surveyor leads me to a split by floor area as a more equitable distribution.

You have to be careful tax wise this matter. The 93K payment would be subject to Capital Gains Tax (CGT), up to 28% depending on the individuals' income including the gain in the tax year of transfer. Were it paid to the company and distributed then it would be subject to Income Tax (IT) at the individuals' marginal rate of tax. If it pushes one into the 40% tax bracket then there are difficulties.

Quite a bit of time with a wet towel round one's head and the backs of lots of used envelopes will be needed to calculate the best solution agreeable to all the freeholders involved.

I do hope that my reply has been of some assistance.