Buying a maisonette, stamp duty/CGT/lease extension question

ian5708

Hi,

I hope someone can give me some solid advice.

I own a flat which I rent out and I'm just about to buy a second flat from my elderly great Uncle. I have been living overseas for a number of years but I'm now back in the UK living with my parents and I will become a resident again in the UK for tax purposes.

The asking price on the flat located in Coventry with the current lease was £65K and he has agreed to sell it to me as a cash buyer for £60K. He has moved into sheltered housing. I have the support from the rest of the family and those named in his will.

There is 51 years remaining on the lease and the landlords agent has suggested budgeting for around £12-14K for a 90 year lease extension with a peppercorn ground rent.

If I was going to buy it without my uncle extending/renewing the lease, I would have to wait two years of ownership to renew it myself. We have therefore reached a decision for him to extend/renew it prior to the sale.

My question is, from a financial point of view should I pay £60K on paper for the purchase of the property and pay my uncle the cost of the lease renewal seperately as a private arrangement (if legal to do so) or should/must I pay him £60K plus the cost of the lease extension upon completion of the sale?

I do not not fully understand the tax implications for each option other that the less I pay on completion, the less Stamp Duty that I pay at 3% BUT the more CGT I will likely have pay when I sell the property a few years down the track.

In relation to CGT, I know that I could factor in the lease extension cost as an expense if I was to pay it myself, but could I do this if its my Uncle who is renewing the lease before sale and not me?

Thanks in advance

Ian

booksurr

an uncle is not a connected person as far as UK CGT is concerned therefore your acquisition cost is the actual price you pay him

of course you cannot claim for the lease extension cost if he pays for it himself. Paying him separately for it would be stamp duty fraud since it is very, very, obviously a "linked transaction" since the extension cannot exist without the property it extends!!!!!!!!!!!!!!

so for both SDLT and CGT purposes you use the figure you actually pay him, which by the sound of it will end up being more than £60k

eddddy

ian5708 wrote: »

If I was going to buy it without my uncle extending/renewing the lease, I would have to wait two years of ownership to renew it myself.

That's not correct.

Your uncle can just serve a Section 42 notice to start the process, then assign the benefit to you.

You can then buy the flat, and then continue and complete the lease extension process without having to wait two years.

It will probably cost your uncle a few hundred pounds in valuation/legal fees to serve the notice.

See: http://www.lease-advice.org/faq/i-am-considering-buying-a-flat-and-i-would-like-to-extend-the-lease-i-know-that-i-cannot-do-this-for-two-years-from-the-date-of-purchase-might-there-be-any-issues-with-the-renewal-or-the-cost-of-the/

ian5708

eddddy wrote: »

That's not correct.

Your uncle can just serve a Section 42 notice to start the process, then assign the benefit to you.

You can then buy the flat, and then continue and complete the lease extension process without having to wait two years.

It will probably cost your uncle a few hundred pounds in valuation/legal fees to serve the notice.

This is good news and sounds favourable. Thanks for this advice.

ian5708

So in a nutshell eddddy, I could buy the property for the agreed price of 60K (& pay 3% SD on that sum), and then once the section 42 notice had been served by my uncle, I could then take on the lease extension process and cost and then one day when I sell the property I could offset my cost of the lease extension as an expense to pay less CGT?

eddddy

ian5708 wrote: »

So in a nutshell eddddy, I could buy the property for the agreed price of 60K (& pay 3% SD on that sum), and then once the section 42 notice had been served by my uncle, I could then take on the lease extension process and cost and then one day when I sell the property I could offset my cost of the lease extension as an expense to pay less CGT?

Just to be clear... your uncle would serve the s42 notice just before selling the flat to you.

It's a very standard procedure, any decent solicitor would know how to deal with it.

(And I believe you are correct about CGT.)