66 years remaining

pinchmyself

RHemmings said:

pinchmyself said:

eddddy said:

pinchmyself said:

it's currently valued with a 99 years lease at £495,000. So as you see I have a substantial CGT exposure. 

Yes - but as I understand it, you pay CGT when the property is eventually sold, not when you extend the lease. Has somebody told you otherwise?

And lease extension costs are allowable against CGT.

And extending the lease (at a fair price) should always make a profit for you.

So if you can afford to extend the lease, it should be a 'no brainer' to go ahead and do it.

pinchmyself said:

it's currently valued with a 99 years lease at £495,000. 

Just to make sure - why are you mentioning a 99 year lease? A statutory lease extension would add 90 years to the lease term making it 156 years.

Are you negotiating an informal lease extension to 99 years with your freeholder? If so, you need to be a bit more careful. For example, how much is your current ground rent, and is your freeholder proposing to reduce it to zero?




Edit to add...

Thinking further, I wonder if this is the cause of your concern about CGT...

If you are considering extending your lease from 66 years to 99 years - that's an extension of 33 years.

I believe that lease extensions of less than 50 years are not considered to be capital costs. So the costs aren't allowable against CGT.

So you either need to go for a Statutory Lease Extension of 90 years, or negotiate an informal lease extension of at least 50 years with your freeholder.

But I'm not a tax expert, so check that with others.

I never realised that the lease extension costs are allowable against CGT.  Also I was of the view that to extend the lease you would extend it back to the original 99 years, not add 90 years to the remaining amount on the original lease. So am very grateful for that nugget of knowledge

I am debating whether to re - let or sell, given my age etc etc

I did not realise that either. That makes a short lease flat a more attractive prospect. 

https://homehold.org/standard-article/are-lease-extensions-tax-deductible

It would be a complicated calculation however. If the value of the flat increases more than the cost of the lease extension, then some CGT may end being paid. (If not a primary residence, etc.) 

The problem seems to focus around how to establish the true value of the flat in such a situation to allow me to make a decision as to whether or not I pay to extend or sell? The value to me has always been it's income generating ability. However when you come to consider selling when having just 66 years left on the lease, you are in a difficult position as to the value of the flat. That value being determined primarily by the length of the lease and the market for a property, despite it's great position and history of rental income, which falls just below a bar which is send for lenders to offer a mortgage to a potential buyer. To compound this issue is the fact that as an income generator, currently that is in flux as the current tenant has financial difficulty. Add to this my age and ability to extend my current mortgage deal, along with the other imponderable being the possible change in legislation regarding leases, as well as tenants rights of occupancy......