Tax implications of granting new leases

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    Tax implications of granting new leases

    My wife and I jointly own the freehold of a property which is physically split into two self contained flats. We want to establish a leasehold structure so that we can re-mortgage the flats separately and sell them separately at a later date. We would either want the freehold to remain in our joint names and each of us owning one of the leaseholds, or vice versa. The property is currently mortgaged with 125k outstanding. We paid 190k for it as a whole and each flat is probably now worth 120k.

    Can anyone advise on what the stamp duty and capital gains tax implications of setting up a leasehold structure would be given the ownership would still be with te same married couple?

    Many thanks for any help on this matter.


    Does the lender for the current mortgage know its split into two flats?


      Yes, the unusual configuration limits the lenders who will lend on it, hence wanting to set-up a leasehold structure so we have access to more lenders at better rates.


        Transfers of property between H & W do not attract capital gains tax.

        You can keep the freehold title in joint names ( H+W) and grant a 125 years lease to solely H or W but not grant under joint names.

        The registration of new lease with mortgage will be subject to SDLT if the flat's market value exceeds £125K threshhold ( if registered before April 2016. )

        The registration of new lease with mortgage will be subject to SDLT if the flat's market value exceeds 40K threshhold ( if registered after April 2016 )


          Many thanks for the succinct reply. I have two follow-up questions if you don't mind...

          - Am I correct to assume that when H or W came to sell their new lease (let's assume for 150k in 5 years time), the capital gain at that point woud be sale price (150k) minus original purchase price (95k per flat in our case), minus cost or purchase/sale/capital improvements (lets say 10k), giving 45k gain, and we could offset this against only W or H's CGT allowance (giving 34k taxable)?

          - I am unclear how the rules concerning premiums and part disposal would work in this scenario, since H & W would retain the reversionary benefit of the freehold? Would they be applied at the point H or W came to sell?

          Regardless, I'm concluding that if we want to do this we shoud crack on before April or we will be giving George his 3%!

          Many thanks again.


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