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Taxation of leasehold extensions
The nine leaseholders of the nine flats in a converted house wish to extend their 82-year leases. The leaseholders also own the freehold through a management company in which they each have one share. The freehold was bought by the management company 40 years ago. The leaseholders have received advice that if their freehold company extends the leases (say to 999 years), this will technically be seen as the company buying back the existing leases and selling on the new leases. The transactions could be viewed by HMRC as making capital gains, even if no actual money has changed hands. HMRC might charge corporation tax on the gains. The total sum would be considerable, being corporation tax on the difference between the sale prices of the leases 40 years ago and the value of new leases now. The leaseholders as shareholders would be liable for the corporation tax, which could be even more expensive than the decline in value of the wasting leases. This cannot be a unique case. Has anyone relevant experience, and did HMRC charge corporation tax along he lines described above.
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