Q&As

What are the tax implications for a property management company whose shares are owned by leaseholders in the property granting an extension to leases without charging a premium?

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Published on LexisPSL on 20/05/2016

The following Tax Q&A provides comprehensive and up to date legal information covering:

  • What are the tax implications for a property management company whose shares are owned by leaseholders in the property granting an extension to leases without charging a premium?
  • Capital Gains Tax

What are the tax implications for a property management company whose shares are owned by leaseholders in the property granting an extension to leases without charging a premium?

For the purposes of this Q&A we have assumed that:

  1. the management company owns the freehold of the block

  2. all residents are shareholders of the management company, and

  3. the granting of the extension is completed via an express surrender and regrant

Capital Gains Tax

When the limited company grants the new leases, it will be making part disposals out of its freehold for CGT purposes (strictly, for the purposes of corporation tax on chargeable gains) in consideration of the surrender of the old lease and the lump sum paid by the lessee for the new lease, which would give rise to a chargeable gain. For HMRC's guidance on this, see: HS292 Land and leases, the valuation of land and Capital Gains Tax (2015) and CG70950.

However see HMRC manual CG71240 restates extra statutory concession D39, which explains that:

'In practice, the surrender of an existing lease and the grant of a new lease should not be treated as a disposal for Capital Gains Tax purposes if the taxpayer so wishes and all of the

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