Is tax due on a buyout fee for surrendering my regulated tenancy?

MacSue

marycanary said:

I suggest you ask for 1/3 of the uplift in the value with vacant possession compared to the value with a regulated tenant. Perhaps you should start at 1/2 the additional value to allow your landlord to negotiate you down.

The flat hasn't been valued but using a rough estimate from my local estate agent, the uplift would be about £100,000 - they started at £20,000 and I've pushed them to £30,000 so nearly a third 

MacSue

YoungBlueEyes said:

This might be a bit naughty, but I'd keep my mouth shut about already thinking of buying your own place and take the bribe 'buyout fee'. It should make the landlord a little more patient if you have holdups further down the line if he thinks he's shouted "jump!" and you've said "how high?"...

The next questions are - how much is he offering and is it reasonable? Sounds like he knows what you've got (security wise) so it's good he's offering money. Just make sure it's plenty because you're giving up a lot.

Thanks. They already know I am thinking of buying. If I just take the 'bribe' then they will give me a time scale to vacate and if I can't find the right place, I'm homeless. I don't really see the advantage in them not knowing. 

See other answers for more detail, but based on estimates their final offer is just under a third of the uplift they would get for vacant possession. They are a large company with many properties, there will be others they can sell if not mine... 

prowla

I don't know what the tax level is for bribes/incentives/gifts from a landlord, but I'd expect the IR HMRC might have some means of classifying it as taxable income.

The LL might dress up the payment as a refund or hand it over in used fivers, but that might impinge on their ability to explain it in their accounting.

Albermarle

They have also offered to sell it to me

Is there a reason that you seem not be considering this as a possibility? It could make the process easier for sure. 

MacSue

Albermarle said:

They have also offered to sell it to me

Is there a reason that you seem not be considering this as a possibility? It could make the process easier for sure. 

I don't have that sort of money!!! Maybe £600,000 or more...

swingaloo

Better to keep to one thread on the subject.

mybestattempt

MacSue said:

My landlord is thinking of selling my flat and has offered me a sum of money to vacate the property where I have a regulated tenancy. I was already considering moving for personal reasons so am seriously considering doing this. I'm struggling to find decisive answer to the question of whether that money would be taxed.

I've been told by a friend's accountant that it would count for CGT but that, as I was giving up my primary residence, it would be exempt. I've also been told it wouldn't because it is similar to a redundancy payout.

I am trying to buy a property but it's hard and so I am trying to push for more money to make the figures work and knowing whether I would have to lose 20% of it is very important. 

They are currently offering £30,000 which by rough estimates is just under a third of the uplift they get for vacant possession. My tax situation is that I have a larger state pension as I didn't take it for 10 years, so I already pay tax on my pension that is above the personal allowance.

Any thoughts? Anyone been in this position? Have experience of accepting a payment to forego a regulated tenancy? Are there drawbacks I haven't thought of?

You may find this helpful:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg72300

mybestattempt

There maybe a capital gains tax liability.

I've just posted this link on the thread on the tax cutting board:


https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg72300

Bookworm105

Brie said:

I'm boggled to think that an accountant has told you CGT would be applicable.  You didn't buy the place (unless I've missed something) so you can't be selling it for a profit, so no CG.

stand by to be boggled then because the accountant knows more about tax than you in this instance.
Whether their answer is correct in respect of a residential (rather than commercial) lease is a different question. 

user1977

Brie said:

I'm boggled to think that an accountant has told you CGT would be applicable.  You didn't buy the place (unless I've missed something) so you can't be selling it for a profit, so no CG.

"I didn't pay anything when I acquired it" isn't a magic exemption from CGT when you receive a sum from a property's sale. It's the price they're receiving for surrendering their leasehold interest, I don't see why it wouldn't generally fall within CGT liability - you (hopefully) understand why it would if it were a "normal" long leasehold interest which they were selling or surrendering.

But if it's been their main residence throughout, then private residence relief applies and nothing is actually due.