Tax for renew lease

[jimmylau8080]

I going to receive my new 999-year lease with no ground rent payable is given to the leaseholder, after I paid around £7,000 to extend my current flat from 89 years lease to a 999-year lease with no ground rent payable.

I received a piece of advice that there are income tax implications. If matters are arranged so that a new 999-year lease with no ground rent payable is given to the leaseholder, his understanding is that the leaseholders are already aware that something of value is being given to them. In tax terms, this value is being moved out of the company and is being given to the shareholder. This movement of value is known as a deemed distribution, for income tax purposes. A distribution is taxed on the individual as if it was a dividend and each leaseholder would have to declare the distribution on their tax return and pay the additional amount of income tax that arises. This may be 7.5%, 32.5%, or 38.1%, or indeed a mix of those rates.

Isn't true that I need to pay this as a dividend tax above. I was very confused because I already paid £7,000 to extend my current flat lease. Why do I need to pay this as tax (That flat is my private resident since 2013)?

[Gordon999]

Who owns the freehold company ? The company may have to pay company tax on the £7000 sale received from you. You have not received a £7000 dividend from the freehold company.

You have liability to pay income tax on your annual income and capital gains tax after sale of your asset.

But the lease extension is not "earnings income" and its not liable for capital gain tax because you haven't sold your leasehold flat yet .

[jimmylau8080]

The freehold company was owned by a pension investment company. After we purchased it, they will transfer our share of the freehold to all flat owners (Half of us, including me, have this as a private resident). According to them, we need to pay because we are freeholders now. Isn't correct?

[Gordon999]

The advice given to me some 10 years ago is that the leaseholder has liability for capital gains tax after the property has been sold, but not after lease extension. This applies if the leaseholders own the freehold title and are on both sides of the lease extension transaction. But if the lease extension was done whilst the freehold company was owned by a pension investment company, your £7000 is received as profit by the freehold company which has to pay 19% company tax ?? I do not know if you become liable for tax on the money which you paid to the company?

https://www.wealthprotectionreport.co.uk/public/843.cfm