signing property on long lease to school to pay fees?

[simon888]

Hi new to this forum. would appreciate any advice.... I have a property whose value is £140.000 with a rental yield of £550pm no mortgage. I would like to sign the property(35 year lease perhpas) over to a prep school to pay school fees (theyt would then collect rent) is this possible to do? i have mentioned the idea to a school and they suggested I get an accountant to draw up the plan and they will look at it.
any help most appreciated

regards
Simon

[Gordon999]

You should discuss the terms of lease with a tax accountant and find out who pays the tax for 35 years ?

I would not expect any child to stay at same school for 35 years ????

[simon888]

Hi thanks for your reply....the children would only be at prep school for 5 years the property would be held by the school until the end of the lease (to pay the fees!!!!!) 550pm over 35years at 2% is going to be something like £200,000 plus income for the school a bit more than the fees. the tax on the income would be paid by the school? my main question is whether its legal to sign lease to a thrid party for this kind of arrangement, and if there are any tax implications of signing over of that property to a third party ie/ school

[sgclacy]

As you will be gaining from it the disposal to a Charity (ie the Prep School) will give rise to a chargeable gain.

The school will be liable to tax on its investment income

Would it not be better for you to enter into a loan agreement with the school whereby you pay the fees in effect over a longer period of time than your child is at school for and the school take a first charge over the property as security. This avoids them getting involved in property maintenance issues and avoids you having to pay CGT on the disposal

[siva]

If you are the freeholder of the property in question i don't see why it would be a problem creating a 35 year lease. As sgclacy mentions this may create some sort of CGT liability to yourself. Of course if the property is your main home or there has been no increase in value since you bought it then there will be no tax liability. There is also an annual exemption in regard to the first £10,600 of capital gains.

If you are a leaseholder yourself, then you may be able to create a sublease, providing your lease allows it. The term will have to be less than the period still remaining on your lease. Again there may be a CGT liability.

[simon888]

thanks siva and sgclacy. both bare consideration. i think ill go ahead and chat with an accountant to work up the best way to present it to the school first.

[Gordon999]

Hi thanks for your reply....the children would only be at prep school for 5 years the property would be held by the school until the end of the lease (to pay the fees!!!!!) 550pm over 35years at 2% is going to be something like £200,000 plus income for the school a bit more than the fees. the tax on the income would be paid by the school? my main question is whether its legal to sign lease to a thrid party for this kind of arrangement, and if there are any tax implications of signing over of that property to a third party ie/ school

You need a solicitor to check the wording of your lease to see if you can sublet for 35 years.

The other way may be to use an offset or flexible mortgage :


http://www.telegraph.co.uk/finance/p...hool-fees.html

[islandgirl]

My goodness you must really want your kids to go to that school! Your choice, but just seems one of the strangest questions I have ever seen asked here...