Tax implications of lease extension sale

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    Tax implications of lease extension sale

    Hi all,

    My situation is as follows: I am a director of the freehold-owning company for a block of 5 flats. There are 4 shareholders in the company - each a leaseholder. The remaining flat leaseholder extended his lease for a premium of £6000 in 2018/2019 (May-Apr) year. We also collected £50 in ground rent from a separate leaseholder of a garage.

    The company also manages the building, and uses the same bank account for service charges as is used for freehold interests. The boost of £6k to the bank balance has been slowly eroded by using the funds for expenses (on the understanding that there would be some true-ing up later on).

    My questions:
    - Should the freehold interests and service charge should be treated entirely separately (I think so)
    - Is corporation tax is payable on the taxable profit of £6050 (i.e. service charges cannot be deducted)
    -- Are there any adjustments allowed to reduce the taxable profit?
    - When and how do we pay the tax?

    Apologies if this is beginners stuff - there may be equally basic follow-up questions.

    I think I've got part way to answering my own question, by referring to:

    I think the additional info is needed: The 4 leaseholders bought out the freehold for a premium of £20k in year Y. Costs were £2k..

    If the above link is correct, how do I quantify the lease value when bought? Is it 20k/5?

    Likewise the allowable costs - is it £2k/5

    And how do I apply indexation? Depending on how this works, there may be no capital gain.


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