Cgt & iht

Savvy_Sue

WP, sounds as if you've already thought of the equity release schemes I was thinking of only couldn't remember the proper name for them!

However I still think you need 'proper' advice, because my reading is that although he'll have a CGT liability for the leasehold if it's extended before he dies, the value of his estate will reduce because the new lease will be less valuable than the old lease (unless I've missed something, this isn't my area of expertise!!!)

Since there's an annual amount which is exempt from CGT, Dad won't pay tax on the whole amount he receives.

A random and non-tax related thought has sprung into my head: presumably the people who want to extend the leasehold are aware that Dad's very frail / not capable of dealing with their own affairs. Are they anxious to get this sorted ASAP because they fear that when Dad dies his heirs will want them out / will put the whole lot on the market / will apply for planning permission to demolish the lot and build a supermarket?

If that is the case, would they be reassured to know that the heirs had no intention of doing this?

WarriorPrincess

jimmo wrote: »

I hope you don’t mind me saying this but to have any chance of getting useful advice on a forum you have to let go and try to not use legalese that you don’t understand and just state the position in plain English.

Wasn't aware of using legalese & I'm fairly used to using forums productively, thank you. I do get the terms lease & freehold muddled - is that what you mean? Not really legalese, just my own muddle.

jimmo wrote: »

From your post at # 10 it seems fairly obvious to me that your OH’s dad owns the freehold of a single building which maybe was at one time was a house but now consists of a single building containing two flats.
If I have guessed right I would be confident of being able to help regarding Capital Gains but if I have guessed wrong I may unwittingly post a load of nonsense leading you in the wrong direction.

No, you're quite correct and all help would be very gratefully received.

WarriorPrincess

Savvy_Sue - Dad owns the freehold, which means he has to be paid by the owners of the 2nd flat for an extension to their short lease. The freehold then becomes worth very little, but dad receives a huge payment for the lease extension. Before the lease is extended the freehold is very valuable, cos the owner has the right to the huge payment for the lease extension. If the payment comes before he dies though, most of the amount will be eligible for CGT. (Not the first £10,000, I think, & not whatever small amount the lease was worth 30-years ago, but all of the rest.)

Unfortunately, the owners of the 2nd flat are extending the lease because they need to sell. I think their buyer will actually foot the bill, but the present owners have started the process - I think because a new owner might have to wait for some time before doing so (there are legal rules about this too!)

getmore4less

Don't forget the actual capital gain factors in the reduction in value of the freehold.

You need to find out what the actual gain will be.

jimmo

Regarding “legalese” yes I was referring to your muddling up freehold and leasehold. When you said “He also owns the lease to another flat in the building.” the most likely explanations were
1)Dad is the freeholder and has granted a lease on the other flat to a leaseholder.
2)Dad is a leaseholder and has granted a sub-lease to a sub-leaseholder.
There is not a great deal of difference between them but whilst we are talking about amounts of £500,000, little differences can have a significant impact.
Certainly within tax law a ”Short Lease” is any lease for less than 50 years. That’s probably true in general law as well and whilst the lease originally granted on the other flat was not a short lease when it was granted but, effectively, as things stand, the current leaseholders can only market a short lease and that is unmortgageable. Their flat is worth peanuts as it is and they need an extended lease in order to sell. Whilst the money to extend the lease may be coming from the prospective buyers I am afraid that is just the way it is. The current leaseholders need to exercise their rights to extend the lease in order to be able to sell.
Coming back to the potential Capital Gains Tax issues I think we need a bit more history. Did dad originally acquire the building in its current layout of 2 flats with the other flat already leased or did he originally acquire a house which was totally occupied as a family home and subsequently turned that into 2 flats?
If the latter, dad may well be entitled to Private Residence Relief in respect of the final 3 years of ownership and Lettings Relief but that will take a bit more research when the facts are known but the basics are here.
http://www.hmrc.gov.uk/helpsheets/hs283.pdf
.
I have to say that I entirely agree with the other posters when they advise you to get professional help on this. I would hope that the professionals who are negotiating the lease extension on dad’s behalf have all this in hand. However there is no harm in learning a thing or two on a forum. Maybe it will give you confidence that the professionals are doing a good job. Maybe not.

WarriorPrincess

Unfortunately, we're not the main heirs (tho' a small proportion of this estate would be an amazing inheritance!!). The main heir engaged the professionals negotiating the lease extension, but hasn't briefed them on any of this.- he hasn't done the research we have & doesn't yet appear to accept the concerns I've raised here.

Everything's bound about with the upset of a (probably) imminent family death. I'm not directly related, which may be why it's easier for me to investigate things.

Thank you to everyone who's responded on this thread. We are going to get professional advice, just in case there's anything to be done about the situation.

relaxtwotribes

Something doesn't seem quite right here. The main heir has appointed the professionals negotiating the lease extension, but surely that would have involved those professionals in being appraised of the ownership of the freehold and them asking for confirmation that the owner(Dad) is on board with the whole process. Which he cannot be.
How can the professionals act in the matter without the specific instruction of the owner?
The attorneys will be asked to sign any legal agreement giving effect to the lease extension, at which point they should/must take independent legal advice that they are acting in the best interests of Dad. Otherwise, it may get messy.

xylophone

You certainly need some legal advice! This all looks extremely odd. Your partner and his brother have PA for their father (legally "incapax") and yet the "main heir" (presumably neither of the brothers) is making arrangements concerning the property?
Father's "executors" are borrowing on his behalf? You mean those who are named in his will as future executors? How can they be doing this without the involvement of those who have PA?