Any tax liability now or later when transferring the freehold title of a property ?

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    Any tax liability now or later when transferring the freehold title of a property ?

    I have the freehold on a maisonette. There is a very old lease for the ground floor but none for the 1st floor where I live. My solicitor advises to have 2 new leases, one for each floor. i cannot have a lease with myself and need to transfer the freehold to a shell company that I will set up. Is there any tax implications (capital gains, stamp duties, other) now or when I sell the flat ?

    #2
    The sale of the flat would be a taxable "event", so there would be a liability for CGT and SDLT.
    The CGT should be zero, if the flat is your main/only residence, and your company would have to pay any SDLT on its purchase.

    I'm slightly intrigued what the benefit would be of the arrangement, though.
    It just seems to be making things more complex.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      Thanks jpkeates.

      The reason the solicitor is advising to set up 2 new leases is that the ground floor flat is being sold, and the buyers are saying that the old lease is defective; they drafted a Deed of Variation (DOV) which considerably changes the principles of the old lease, and it is messy to have 2 legal documents, an old lease and a DOV. Because a lease for the 1st floor cannot be between me and myself, I was advised to create a company that would hold the freehold title and grant me a lease.

      My questions are:

      1) does the transfer of the freehold title from myself to my company create a taxable event at the time of such transfer of freehold title (i.e. now), for example could the transfer of freehold be viewed as a sale by me - incurring CGT - and a purchase by my company - incurring stamp duties

      2) when I come to sell the flat in future (let's say in 2030), does the fact that the freehold is held by my company has any tax impact different from if the freehold was held by me as an individual (which would be CGT unless the flat is still my main/only residence, and the buyer pays the stamp duties). For example, could CGT relief not be granted because the cy (rather than an individual) is holding the freehold, and a cy does not have a main dwelling like an individual does

      Thanks

      Comment


        #4
        Originally posted by Kate Joyce View Post
        1) does the transfer of the freehold title from myself to my company create a taxable event at the time of such transfer of freehold title (i.e. now), for example could the transfer of freehold be viewed as a sale by me - incurring CGT - and a purchase by my company - incurring stamp duties
        For tax purposes, the "transfer" is a sale at market value. If you live there, there won't be CGT, if you don't there would be.

        2) when I come to sell the flat in future (let's say in 2030), does the fact that the freehold is held by my company has any tax impact different from if the freehold was held by me as an individual (which would be CGT unless the flat is still my main/only residence, and the buyer pays the stamp duties). For example, could CGT relief not be granted because the cy (rather than an individual) is holding the freehold, and a cy does not have a main dwelling like an individual does
        When a business sells a property there's no CGT, because for the business any increase in value is income, not a capital gain, so is taxed through corporation tax.

        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

        Comment


          #5
          I believe that when you transfer the freehold title to your company and in return, the company transfers a leasehold title for maisonette to you , there is no sale of your maisonette to a third party. You still hold the property and you have no liability for cgt.

          You need to consult a tax professional to clarify this situation .

          Comment


            #6
            Thank you Gordon999

            Comment


              #7
              Originally posted by Kate Joyce View Post
              i cannot have a lease with myself
              Out of interest, what prevents this? Contract law, perhaps?

              It is an issue that I have wondered about before, since I am a FH to two flats. It has crossed my mind what would happen if I were to buy one of them.
              There is a fine line between irony and stupidity. If I say something absurd please assume that I am being facetious.

              Comment


                #8
                Yes you can't make a lease to yourself but a disposal of the freehold would be a taxable event as it's not a personal residence ( however as you own one of the flats you would be exempt from section 5 RFR procedure). In my opinion this is overcomplicating things and you should just write one new lease for the other flat which contains clauses saying the freeholder contributes 50% to service charge if no 2nd lease exists otherwise you will have the added expense and hassle of meeting limited company obligations .
                It's a common scenario that presumably has worked fine in your case for many years ?

                Comment


                  #9
                  Tax liability later? That would depend on the tax rules at that later point. I'm expecting taxes to go up to pay for covid19 and Brex**it. So yes, could well be worse than under the present regime.

                  I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

                  Comment

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