smnjas
22-08-2007, 10:54 AM
A question relating to leasehold extension that perhaps sbdy can help us with.
We are five leaseholders of flats, already enfranchised for some time, who are respectively shareholders in and directors of the freehold management company of the five flats in the building. The existing leases have around 100 years to run, and we would like to extend them from the original 125-year term to 999 years (i.e. by 875 years).
The key question is whether we can amend or extend the term clause of the leases without formally terminating the existing contracts and initiating successors for terms of 999 years. Our concern is that, if the answer to this question is that every lease extension requires legally the issue of a new lease (with the deed of surrender and re-grant), the following potential problems might arise:
- Could HM Revenue & Customs take the view that the freehold management company has incurred a corporation tax liablility on imputed revenues from issuing new 999-year leases ?
- If not, is it plausible that HMR&C might consider that the directors of the freehold management company have received a benefit-in-kind either at the current market value of a new leases or for the differential value between the retiring and new leases ?
- Again from a fiscal viewpoint, would there be an imputed capital gains tax liability for leaseholders arising from lease replacement in the event of moving home ?
While it is unlikely that any of the above would be intended in the spirit of leaseholder enfranchisement legislation, the incestuous roles of freehold owner/management/leaseholder, when taken at arm's length, could incur such unwelcome transaction costs ... or are we being overanxious on these issues ?
Thanks ...
We are five leaseholders of flats, already enfranchised for some time, who are respectively shareholders in and directors of the freehold management company of the five flats in the building. The existing leases have around 100 years to run, and we would like to extend them from the original 125-year term to 999 years (i.e. by 875 years).
The key question is whether we can amend or extend the term clause of the leases without formally terminating the existing contracts and initiating successors for terms of 999 years. Our concern is that, if the answer to this question is that every lease extension requires legally the issue of a new lease (with the deed of surrender and re-grant), the following potential problems might arise:
- Could HM Revenue & Customs take the view that the freehold management company has incurred a corporation tax liablility on imputed revenues from issuing new 999-year leases ?
- If not, is it plausible that HMR&C might consider that the directors of the freehold management company have received a benefit-in-kind either at the current market value of a new leases or for the differential value between the retiring and new leases ?
- Again from a fiscal viewpoint, would there be an imputed capital gains tax liability for leaseholders arising from lease replacement in the event of moving home ?
While it is unlikely that any of the above would be intended in the spirit of leaseholder enfranchisement legislation, the incestuous roles of freehold owner/management/leaseholder, when taken at arm's length, could incur such unwelcome transaction costs ... or are we being overanxious on these issues ?
Thanks ...