Q&As

A three storey house is converted into three flats and the flat leases have 65 years left to run. The freehold was purchased by the management company in 1997 and the three leaseholders are the shareholders and directors of the management company. New 999 year leases are being granted at a peppercorn rent and no premium is being paid. Are there any adverse capital gains tax consequences to either the management company or the leaseholders?

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Produced in partnership with Harriet Brown of Old Square Tax Chambers
Published on LexisPSL on 03/12/2015

The following Property Q&A produced in partnership with Harriet Brown of Old Square Tax Chambers provides comprehensive and up to date legal information covering:

  • A three storey house is converted into three flats and the flat leases have 65 years left to run. The freehold was purchased by the management company in 1997 and the three leaseholders are the shareholders and directors of the management company. New 999 year leases are being granted at a peppercorn rent and no premium is being paid. Are there any adverse capital gains tax consequences to either the management company or the leaseholders?
  • Capital gains
  • Concession D39
  • Considerations

A three storey house is converted into three flats and the flat leases have 65 years left to run. The freehold was purchased by the management company in 1997 and the three leaseholders are the shareholders and directors of the management company. New 999 year leases are being granted at a peppercorn rent and no premium is being paid. Are there any adverse capital gains tax consequences to either the management company or the leaseholders?

In answering this Q&A we have assumed that the leaseholders are surrendering their existing leases in return for new 999 year leases in place of the existing leases.

Capital gains

The Taxation of Chargeable Gains Act 1992, Sch 8 (TCGA 1992) contains a number of special provisions dealing with leases. So while leases are subject to the general principles of TCGA 1992, these are to some extent modified by the provisions of Sch 8 (and some other specific provisions). There are special rules for computing the capital gain or loss which accrues on the disposal of a lease which has 50 years or less to run. Such a lease is a wasting asset, but here there remains 65 years on the lease and consequently TCGA 1992, s 44 should not apply.

Absent anything else, therefore, the normal principles of capital gains tax

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