Sale of a freehold

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    Sale of a freehold

    Hi,

    When we purchased our London flat in 2012, it came with the freehold (to our upstairs flat and the one downstairs). Both flats had a lease of 69 years when we bought it, however, we increased ours to 999. There is also no ground rent. We sold our flat in 2017 but kept hold of the freehold. In 2017 we sold the freehold separately - a freehold company offered us an amount but the leaseholders of both the flats had first refusal and they ended up buying it. We are now completing our tax return as selling the freehold has capital gains tax implications. However, because the freehold came with the flat when we bought it, we don't know how to value it. Do we have to use a surveyor to price it or is it safe to use an on-line calculator? I feel like the value should only be what someone is willing to pay for it....? If anyone has gone through a similar experience, I'd be grateful to get your thoughts.

    Thanks.

    #2
    You should have apportioned the cost in 2017 when you sold the flat. If you did not do so at the time, the cost of the freehold will be nil.

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      #3
      Apologies, I misread, I assume that the flat was your private residence, Did the vendor not allocate a value when you purchased? It looks like you had a partial disposal when you extended the term of your lease and then a final disposal when you sold. I recommend that you contact an accountant,

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        #4
        Who are we ? Was the freehold registered in joint names ? ?

        If so, then each joint owner can claim a capital gains tax free allowance of £11,700.

        If the freehold title was sold for less than £23,400 ( 2 x £11,700) , then probably no tax to pay and you can use an online calculator to arrive at a rough value for 2012.

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          #5
          Thanks for your replies.

          Yes, the freehold was registered in joint names (my partner and I lived in the property for 3 years and then let it out for 18 months before selling). We sold the freehold for £30,000 so over the CGT limits.

          We had the freehold valued by a company at the time of flat sale and we offered it to the buyers at an extra cost of £30,000 but they declined. They must have changed their mind because they ended up buying it anyway.

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            #6
            What valuation does an on-line calculator give for the freehold title in 2012 ?

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              #7
              I'm afraid I can't find one that will give me the value of it back in 2012 as it asks for the cost of the flat excl. the freehold. It was all combined when we bought. Maybe I've missed something.

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                #8
                Assuming the cost of 90 years statutory lease extension is roughly 6-5% of the market value of the flat with 69 years remaining on the lease, and the approximate value of the freehold title is 2 x 6.5% = 13%

                What is 13 % of your flat value in 2012 ?

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                  #9
                  We bought it for £417,500 in 2012, so £54,275?

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                    #10
                    Lets say it is £54K .

                    Since you have extended your own lease from 69 years to 999 years and transferred 50% of the freehold value to your own flat, The value remaining in freehold must relate to lease extension cost payable by other flat.

                    So your acquisition cost in 2012 can be estimated at £27K and you sold for £30K in 2017, so your capital gain = £3K.

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                      #11
                      That's incredibly helpful - thank you very much. I never considered that 50% of the value of the freehold would have been transferred to the value of our own flat when we extended the lease. That reflects the calculations done by the freehold company who valued it.

                      I'm not sure if you can answer this too but when completing the capital gains section of the self-assessment, I'm literally just putting those figures in 1) value of asset when we bought it: £27k and value when sold, £30k? When I called the tax office, they were talking about treating it as part disposal of land and that I may have to amend my previous assessment..... I couldn't understand what they were talking about! The consultant didn't really seem to either.

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                        #12
                        I would enter 50% of those figures on your tax returns ( you + partner ) and show the entry value at £13.5K in 2012 and sale value at £15K in 2017. So the capital gain by each person is only £1.5K .

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                          #13
                          Ok, many thanks for the advice. Much appreciated.

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