Tax on sale of lease extensions

[alastair0772]

About 5 years ago we purchased the freehold of our block through a company limited by guarantee set up for the purpose. 90% of owners participated. We then granted ourselves new 999 year leases at a peppercorn groundrent.

We are currently negotiating a new lease with a non participator. We reluctantly accept that tax will probably be payable on part of the receipt, but are unsure how we calculate the deduction against tax which will presumably be the cost to the company of buying the freehold of the flat originally. Two "tame" accountants have come up with different answers.

Has anyone found themselves in this position?

Thanks for any assistance

[jeffrey]

Will the new participator be paying a premium substantially greater than that of the existing participators?

[Telometer]

If there are ten identical flats in your block, attributable base cost =

One tenth (or whatever) of original cost for total freehold x [(proceeds)/(value of remaining interest+proceeds)]

It is a company so you are entitled to indexation. Don't forget to include any legal/other fees either on acquisition or disposal.

Probably not relevant but: if this is a compulsory purchase - rather than you offering to sell the lease extension - then you could roll over the proceeds into a new purchase of land and buildings and not have to pay tax.

[alastair0772]

Firstly, thank you both for your responses.


As it now turns out, there are two extensions going through. The first is for the only "double size" flat. When we were buying the freehold the owner of that flat died and her executors pulled out. The other participators then chipped in some more money rather than going through the costs of a new valuation. Our valuer was able to give us a figure for the "cost" of that flat
(£19,000), so that one is easy.

Telometer: The other one is a standard flat, but not sure about your formula. What do you mean by "value of remaining interest+proceeds"? My instinct is to take the cost of our freehold purchase deduct value of double flat and divide this by the number of standard flats.

Jeffrey: Yes the premiums are bigger. We each paid about £12,000 and premiums are £20,00 and £35,00 for the double size flat.

[Telometer]

Value of remaining interest is just exactly that - the value of what is left after you dispose of the lease extension.

Proceeds is what you get for the lease extension - the number you used on the top of the fraction.