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bigduckontax
bigduckontax, Accountant
Category: Tax
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I have recently taken on a client who has the structure of a

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I have recently taken on a client who has the structure of a flat management company which is as follows:-
In 1982 a limited company was set up and each tenant had 5 shares per house and their lease was granted for a period of 99 years and all contributions from tenants and expenses went through this company until 2010 when the contributions and expenses were split out into separate service charge accounts in line with ICAEW guidelines leaving the share capital in the accounts. In 1991 another limited company was set up and the freehold was purchased and all ground rents were received into this company and some of the tenants had shares in this company. Recently, a tenant has requested a lease extension from 64 years back up to 99 years which was granted after a professional valuation was done and she paid an amount of £16,666. She had received 5 shares at the same time as the lease extension was done but the previous accountant has classed the whole amount as share premium which seems wrong to me. My main question is whether the company is liable for corporation tax on the sum of £16,666. I haven't been able to find the answer to this and obviously I need to ensure that I have dealt with it correctly in the figures.

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

This would normally be a chargeable gain for Capital Gains Tax (CGT) purposes, but as we all know companies are not subject to CGT so this premium will form part of the trading activities of the company. Simple, as the meerkat in the TV advert would say!

I do hope that you have found my reply of assistance.

Customer: replied 8 months ago.
are you saying that the amount that has actually been posted to share premium should go to other income which is then subject to corporation tax.

Correct, that seems to be the general consensus of experts on this thread.

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Thank you for your support.