Post-enfranchisement, is ground rent still payable?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Post-enfranchisement, is ground rent still payable?

    Hi everybody, I just have a quick question.

    I own a flat in a block of 8, and 4 of us have just successfully bought the freehold. The task has fallen to me to prepare the first year's budget and give everybody an invoice for the year's charges. Am I right in thinking that the 4 leaseholders will be charged ground rent as before, but the 4 freeholders won't have to be charged ground rent any more?

    Thanks!

    #2
    You would only be paying yourself - so, I don't see a reason for collecting it.
    ASSUME NOTHING - QUESTION EVERYTHING!

    Comment


      #3
      Thanks Paragon, that's what I thought. In fact, not only would we be paying ourselves, it would be profit in the company which we'd be taxed on if we withdrew it!

      Comment


        #4
        The four of you who have made a substantial investment out of your own pockets should not be paying rent and you, as directors of the company, may decide to reward yourselves further by charging yourselves less in service charges than you charge the remaining lessees. This should probably be done by paying yourselves a dividend, not indicating in the accounts that you are required to make available to lessees that you have done this! Of coyrse the rent that you receive from these lessees also goes in your collective pockets (after allowing for tax of course!)

        P.P.
        Any information given in this post is based on my personal experience as a landlord, what I have learned from this and other boards and elsewhere. It is not to be relied on. Definitive advice is only available from a Solicitor or other appropriately qualified person.

        Comment


          #5
          Posts #2 and 4 are wrong! This is why:
          1. Lessees still have to pay, at present. If one is to sell or remortgage, a g/r receipt will be essential.
          2. Co. is going to be taxed on ground rent income, anyway, even if it stops collecting.
          3. Solution: Deeds of Variation (to delete rent covenant, if that's all that needs altering and existing leases are otherwise OK) OR Deeds of Surrender and Regrant (esp. if lease terms need extending).
          JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
          1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
          2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
          3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
          4. *- Contact info: click on my name (blue-highlight link).

          Comment


            #6
            Sounds very complicated Jeffrey and very expensive, and a good source of income for someone.

            Receipts are no problem. They can be created at any time and signed by the leaseholder and the freeholder (who just happen to be the same person) if someone really wants to see that £400 has been paid over 20 years.

            In my case, my flats have the same ground rent =£20/year. I am the leaseholder of the flats and the freeholder of the building. If I were to bother collecting the g/r - I would have to put it on the tax returns as income, and at the same time, deduct it as a taxable expense = the effect being neutral liability.

            Since we can't even find £billions that have gone missing - I don't think anyone is going to be too concerned about £400 over 20 years, especially since the differential is zero.
            ASSUME NOTHING - QUESTION EVERYTHING!

            Comment


              #7
              Why are ground rent receipts vital? Read s.45(2) of Law of Property Act 1925.
              AND the rental income is taxable, whether collected or not, so never try to be 'clever' with HMRC- they have no sense of humour, you know.
              JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
              1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
              2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
              3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
              4. *- Contact info: click on my name (blue-highlight link).

              Comment


                #8
                Why would income be taxable if never received? If it is due and not paid - it actually could be considered as a bad debt deduction in some cases.

                E.G. If depositers don't receive interest on their Icelandic deposits - would they still have to pay taxes on the phantom income?
                ASSUME NOTHING - QUESTION EVERYTHING!

                Comment


                  #9
                  Originally posted by Paragon View Post
                  Why would income be taxable if never received? If it is due and not paid - it actually could be considered as a bad debt deduction in some cases.

                  E.G. If depositers don't receive interest on their Icelandic deposits - would they still have to pay taxes on the phantom income?
                  Icelandic Banks are a rubbish example, as UK income tax on interest is deducted at source.
                  Income Tax is not merely a tax on received £££. It's the legal entitlement to receive £££ that triggers tax liability.
                  JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                  1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                  2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                  3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                  4. *- Contact info: click on my name (blue-highlight link).

                  Comment


                    #10
                    Thanks for all your answers. Because I wanted to be absolutely certain, I decided to go back to my solicitor, and pay to get the right answer! And the answer was that the new freeholders still have to pay ground rent as it stated in their leases; but obviously this is daft as the money goes into the freeholding company's account where, if it gets distributed back to the company's shareholders as part of a dividend, tax would be deducted.

                    The solution is to change the leases of the new freeholders. Obviously there won't be any argument, so the cheapest way is to add a Deed of Variation to each lease changing the ground rent to a peppercorn rent (ie. zero).

                    So there you go!

                    Comment


                      #11
                      Good! Your solicitor agrees with my post #5.

                      Jeffrey 1
                      Paragon 0
                      (after extra time)
                      JEFFREY SHAW, solicitor [and Topic Expert], Nether Edge Law*
                      1. Public advice is believed accurate, but I accept no legal responsibility except to direct-paying private clients.
                      2. Telephone advice: see http://www.landlordzone.co.uk/forums/showthread.php?t=34638.
                      3. For paid advice about conveyancing/leaseholds/L&T, contact me* and become a private client.
                      4. *- Contact info: click on my name (blue-highlight link).

                      Comment


                        #12
                        Many thanks for your replies. Very interesting. Different responses depending on whether you are a lawyer or an accountant. I checked with an accountant, not mine as yet, who stated that maybe technically it should be, but that in practice it is ignored based on the premise that you can not make a profit from yourself and that the net result to the tax man is zero and, therefore, he has no interest in the matter.

                        However, I will accept the score of 1 - 0 - but being played under protest.
                        ASSUME NOTHING - QUESTION EVERYTHING!

                        Comment

                        Latest Activity

                        Collapse

                        • Reply to Section 20 costs
                          by lampshade
                          It occurs to me and others that there us no responsible person. How can work so important be neglected for over 2 years and all thagt has happened is that leaseholders have been made to pay £000s each, for work that has not been carried out....


                          I and other leaseholders, are pretty...
                          27-05-2022, 13:06 PM
                        • Section 20 costs
                          by lampshade
                          Having been issued with a section20 that requires a lot of expensive works to common area doors and the like, I am wondering what the situation is regarding an increase in quotations already given.
                          Materials prices are rising fast and we have no idea when the works will start so given that we...
                          18-11-2021, 06:32 AM
                        • Reply to Old managing agents accounts
                          by jazzythumper
                          Since we have no reconciliation accounts, and the old managing agent didn’t pass on any account or funds to us, we have no way of knowing whether the debt was wiped with the sale of the freehold which I suspect it was. Sadly I don’t think it seems there is any way tl
                          find this info out?...
                          27-05-2022, 11:14 AM
                        • Old managing agents accounts
                          by jazzythumper
                          Since obtaining the RTM and changing the managing agent, we have never been given full accounts / receipts for the previous year(s). We believe that as the old freeholder and leaser holder of one of the flats were represented by the same solicitor that prior to the sale of the freehold, we were subsidising...
                          20-05-2022, 11:21 AM
                        • Freehold confusion
                          by davetg
                          30 years ago I bought a flat from a friend. The freehold at the time was registered to my friend and the lady who owned the other flat. I understood at the time that I would replace the friend on the freehold but this never happened. This was not a problem until now as when work on the structure of...
                          24-05-2022, 14:29 PM
                        • Reply to Freehold confusion
                          by AndrewDod
                          I'd partially disagree with ^.
                          Certainly it will have no value on the open market sold alone. But would have value as an addition to a flat sale, simply because the control that can be exerted carries value (the same does not apply to a typical; share of freehold situation where a minority owner...
                          27-05-2022, 09:29 AM
                        • Reply to 2-1 transfer - what does Freeholder do?
                          by Lawcruncher
                          There are two distinct things.

                          One is whether the landlord's consent is required for the transfer. If it is (which would be unusual but not unknown for a long residential lease) then the landlord can impose reasonable conditions on granting the consent. If it is not, then the landlord has...
                          27-05-2022, 08:04 AM
                        • 2-1 transfer - what does Freeholder do?
                          by Flashback1966
                          I am a Freeholder. Have a flat there too. I have received an email from the leaseholder's soclitors acting for Mr A. They are doing a 2-1 transfer from the names of Mr A and Ms B to just Mr.

                          The solicitors want to know the requirements on completion.

                          Is is just a notice of...
                          26-05-2022, 18:46 PM
                        • Reply to Freehold confusion
                          by CStevens
                          In response to your questions:

                          1. You will need the landlord to sign a TR1 as suggested above. If your friend has passed away then his Executors will have to sign;
                          2. In short no. The real value in these freeholds is normally the money that has to be paid in order to extend leases....
                          27-05-2022, 06:42 AM
                        • Reply to 2-1 transfer - what does Freeholder do?
                          by CStevens
                          check the tenant's lease but normally you should (a) ensure all rent and service charges are paid up to date; (b) check that there are no existing breaches of the lease. If there are then you should require the tenant to deal with these before agreeing to acknowledge the transfer.

                          With...
                          27-05-2022, 06:34 AM
                        Working...
                        X