Tax reclaim as flat value declines with v. short term?

[janewil]

I bought my flat 19 years ago for £27,000 and now it is worth only about £70,000 because the lease currently has under 30 years left to run (2 bedrooms in Edmonton, N18.) (The reason I haven't extended the lease is because the Freeholders are extremely difficult to deal with - they're truly awful, obstructive to say the least.) I have been letting it for over 2 years now.

Anyhow, does anybody know if I can claim any tax back because of this? I plan to sell the flat in another couple of years but as I lived there for 16 years myself, I am not concerned about CGT. However it would be great if the revenue owed me some money! Thank you for your responses!!!

[Tax Accountant]

I do not believe that there is any amount you could claim back from the Inland Revenue. Of course, you will be able to claim all the normal running expenses of the flat against the rental income and thereby pay less tax than you would otherwise. These expenses would incluse the service charges, mortgage interest, if any, buildings insurance, furnishings wear and tear allowance etc.

Did you know that you could force your freeholder to increase the term of the lease by paying an amount which is calculated by reference to a formula. If you raise a query in the rental section, someone may clarify the position for you.

Ramnik

[Grange]

Anyhow, does anybody know if I can claim any tax back because of this?

If you mean 'If I had bought a flat with a 999 year lease it would now be worth 450,000. Because it only had a short lease it is soon going to be worth nothing, but I paid 27,000 for it. Will I be able to claim a capital loss on my original 27,000?'

Then the answer is no. When you bought the flat, you were buying the right to use it for the next 35 (or whatever) years. The price paid reflected that. You have not lost anything... you were effectively paying 35 years' rent up front.

[Poppy]

Why do leaseholders conveniently forget that a lease is effectively paying a premium for the right to use the property for say 99 years. The true owner is of course the freeholder.

[Tax Accountant]

Why do leaseholders conveniently forget that a lease is effectively paying a premium for the right to use the property for say 99 years. The true owner is of course the freeholder.

Not quite. Leasehold and freehold are both ownerships but of different kinds. Payment of leasehold premium for leases of less than 50 years is a mixture of upfront rent and capital. All lease payments for leases in excess of 50 years are wholly capital payments and could give rise to capital gains tax losses on disposal. All capital gains tax losses are normally only relieved by setting off against other capital gains in the same year as the year of disposal or later years.

Ramnik