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TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I own a freehold maisonette and the owners of the other flat

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I own a freehold maisonette and the owners of the other flat wish to extend the lease. I'm trying to find out if I am liable for capital gains tax on the cost of the extension. I discovered a link on the government site which suggests I'm not (CG71242 - Leases: disposal: extension of lease: ESC D39) but I want confirmation of this. Can you advise?


ESC/D39 applies to the both the leaseholder who is surrendering/disposing of the old lease and the freeholder who is granting/selling a new lease. Provided that the only change between the old lease and the new lease is the term and that there are no other changes, then there are no immediate CGT implications for either party. ESC/D39 at CG71240 here outlines the conditions.

Take a look here and under the heading "NGM Ltd’s grant of the new longer leases: capital gains tax" here for confirmation.

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

Customer: replied 2 years ago.


thanks for your response.

So, my position is that the leaseholder has asked for an extension. The terms of the lease, other than new number of years remaining and ground rent, will not have changed. Given that then can you confirm that I am not liable for CGT?



That's my understanding as supported by the NGM article and that was written by a highly qualified individual. However, I've been doing some more research.

If you look here, page 541, the commentary on ESC D39 says that it does not address the position of the landlord. Others think it does because it says "the surrender of an existing lease and the grant of a new lease should not be treated as a disposal for Capital Gains Tax purposes if the taxpayer so wishes", the "surrender" being something the lessee does and the "grant" being something the landlord does.

Even if ESC D39 did not apply and it is badly drafted to be frank, Section 242 TCGA 1992 here may apply for a small part disposal (no more than £20,000).

I have to say I find the idea of that a freeholder can get tax free cash from the extension of a lease odd. However, ESC D39 says "the extension of the lease does not have any immediate Capital Gains Tax consequences." I suspect that the intention of the concession was to enable a landlord to take account of the new lease payment if and when they disposed of the freehold.

Customer: replied 2 years ago.

So, when the lease is extended and I receive payment for this, do I need to declare this or is it not necessary if it meets the ESC D39 critera which it sounds as if it does. Forgive my ignorance with this but tax returns are something I've never had to do.

Can you tell me what sum of money you will you receive for the new lease and how long will it be? How long is left on the old lease?

Customer: replied 2 years ago.

The existing lease has 61 years left on it. The extension will be up to 90 additional years. The cost is yet to be decided. I have to get it valued and then it's open to negotiation. I've been told anything from 18k to 26k.

I would disclose it in a tax return and claim relief from tax under ESC D39.

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