Lease Extension Subject to Taxation?

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

    Lease Extension Subject to Taxation?


    Hi there. I live in a Victorian property which has been divided into 5 flats.
    Several years ago, three of the flat owners (including myself) purchased the freehold. The two remaining flat owners decided that they would not participate in the freehold purchase.
    A company was formed for the three freeholders. This company collects ground rent from the two leaseholders who are not freeholders. We submit accounts to companies house on an annual basis etc.

    Recently one of the two leaseholders (who are not freeholders) decided that they wanted to extend their lease. The original lease was for 99 years. The remaining term on their original lease was 66 years.
    The lease extension was granted for 99 years at a peppercorn rent. A new lease was drafted under the same terms as before (apart from the peppercorn ground rent).
    The leaseholder paid a substantial premium to the freehold company for granting the lease extension.

    Before we divide the premium between the three freeholders, my question is - are we (as the freehold company or as individuals) liable for any tax on this premium that was paid?
    I would be very grateful for any assistance.

    #2
    Was the lease bought in your personal names or in a limited company?

    Comment


      #3
      Thanks. We acted as a limited company in order to process the lease extension. The limited company comprises the three freeholders..

      Comment


        #4
        I'd leave the money in the company, and relieve the directors of paying service charge until such time as the cash is depleted.

        Comment


          #5
          Thank you very much for your response - I appreciate any assistance.
          The only trouble is that there are two companies involved (I should have mentioned this previously!)
          One company is the freehold company (representing the interests of the freeholders - collecting ground rent, leasehold extensions etc).
          The second company is the leasehold company - this company includes all of the 5 leaseholders (including the 3 freeholders who are of course also leaseholders). This company is used for the day to day running of the property - collecting service charges, buildings insurance, property maintenance etc.
          I'm guessing this would alter your initial suggestion? As of course the service charges are dealt with by the leasehold company.

          Comment


            #6
            Normally the freehold company will report the income received from lease extension as "annual profit" in its annual acounts which are produced after the year end.

            The profit will be reported in the tax return and about 13 months later the company get a tax bill of around 20%. The remaining 80% of profit can be retained by the company or paid out as dividend to its 3 shareholders.

            For tax year 2018/2019, there is a dividend allowance of £2000 per person which is Nil tax. Any excess amount above £2000 paid in dividend is charged at 7% ( Lower tax band ) or 32% ( higher tax band )

            If the freehold company acts as a "nominee buyer company" , the profit from lease extension belongs to the 3 freeholders ( not company ) and the 3 freeholders report one third profit on their own tax return ,

            Your accountant will advise you which situation applies.

            Comment

            Latest Activity

            Collapse

            • Rent-a-room and tax deductions
              doobrey
              Trying to settle a debate :-

              I am aware that claiming rent-a-room relief precludes the deduction of expenses for that property such as utilities, GSC, etc.

              However, my accountant has stated that I cannot deduct an amount for use of my own property for business purposes, since...
              17-10-2019, 11:57 AM
            • Reply to Rent-a-room and tax deductions
              doobrey
              Thanks. That is what I thought....
              17-10-2019, 13:23 PM
            • Reply to Rent-a-room and tax deductions
              jpkeates
              No, I believe you would be able to claim an allowance of £4 a week against the income from that business....
              17-10-2019, 13:18 PM
            • Reply to Rent-a-room and tax deductions
              Gordon999
              The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free from letting out furnished accommodation in your home. This is halved if you share the income with your partner or someone else. You can let out as much of your home as you want.

              So your web design business...
              17-10-2019, 13:04 PM
            • Reply to Rent-a-room and tax deductions
              doobrey
              I am not suggesting that Rent-a-Room is a business (...and that is, I guess, part of the point of my question).

              I am aware that claiming rent-a-room relief precludes the deduction of expenses for that property such as utilities, GSC, etc. However, my understanding/assumption is that this...
              17-10-2019, 12:48 PM
            • Maintenance payment flow of funds
              Kots
              Hi all,

              I am one of three flats and I own a share of freehold. We've setup a company to deal with the day-to-day matters such as maintenance payments and such.

              One of the freeholders, who is also a director of the company, usually arranges quotes for maintenance works and insurance...
              15-10-2019, 05:10 AM
            • Reply to Maintenance payment flow of funds
              Gordon999
              For your BTL letting business , you are required to keep proper records of the rental income and expenses for each year and be able to report the figures in your annual income tax return.

              The rental income and expenses must be supported by bookkeeping records, suppliers invoices...
              17-10-2019, 12:46 PM
            • Reply to Rent-a-room and tax deductions
              jpkeates
              The point of the Rent a Room scheme is that the landlord isn't running a business, it's a non-commercial arrangement.
              So you aren't using part of your property for running a business unless you have another business (like a web design business).
              17-10-2019, 12:40 PM
            • Reply to Maintenance payment flow of funds
              Kots
              Thanks for your replies.

              We are tenants in common and although the initial idea was to pay funds in advance, I am not for this so the plan would be that funds are paid as they are required.

              What about HMRC, does anybody know if I'd be unable to offset these payments against...
              16-10-2019, 14:08 PM
            • Reply to Maintenance payment flow of funds
              leaseholder64
              I'm not clear as to whether the company is the actual freeholder, or you are tenants in common. In the latter case, setting up a company is an unnecessary expense, which probably cannot be fully funded from the service charges.

              Also I'm not clear as to whether any service charges are paid...
              15-10-2019, 10:09 AM
            Working...
            X