Saving tax on investment property

Ernie7

My brothers and I own a house that's been converted into 4 flats. The flats are let out on ASTs, and we own the freehold. No mortgage. We've owned it 40 years, and it's gained in value.

That's where we're starting from.

We now want to sell off the flats individually, with new 999 year leases at nil ground rent and with a share of freehold.

To do that, logically the first stage would be to create 4 new 999 year leaseholds, and transfer the freehold (which has practically nil value) into a separate company. We'd then sell each leasehold with a 25% share in the freehold company.

There will be a CGT hit when we sell the flats individually, and we accept that. What we are having trouble with is avoiding paying CGT before we actually sell the flats, just when we are restructuring.

Ernie7

What we were hoping to do:

1. Do NOT create leases now

2. Market each flat as “to be sold on a new 999‑year lease with share of freehold”

3. On exchange with each buyer, grant the 999‑year lease directly to them

4. Include a clause obliging all buyers to join the freehold company

5. After the last flat is sold, transfer the freehold into the company

Stage 5 is the awkward bit. S5 of LTA 1987 gives the existing leaseholders the right of first refusal. No problem with that, except what happens if one of the leaseholders decides to pre-empt the others and buy the freehold (for nil value)?

Sam_666

As usual with these kind of posts, key details are missing.

Do this 4 flats have each own title deeds?
Do this 4 flats have planning permission for conversion?
Do this 4 flats have each own council tax bill?
Etc…

I find it impossible that house has beeen converted to 4 flats without lease and freehold setup in first place.

Ernie7

https://forums.moneysavingexpert.com/discussion/comment/82007761#Comment_82007761

Each flat has planning permission, and individual council tax.

No, each flat does not have individual title deeds. That's exactly what we are now trying to do now. As the freeholders owned all the flats, there was no need for individual flats to be registered at the land registry.

silvercar

It must be possible, as developers often buy an old house and convert to flats. Maybe you need to create the leases and the freehold company first and then change/ add directors and shareholders to the freehold company when each one is sold.

For tax considerations , if either of you are married you could gift half your individual share to your spouse, thereby reducing your individual gains. You’d each then have a £3k CGT allowance if not used elsewhere, and also may have a lower tax bill if the gain pushed you into the higher rate. Also, you could sell say 2 flats in this financial year and 2 in the next year, to split your gains over 2 tax years.