Philip Vickery and Mark Chick recorded a podcast for the website Property Battlefield.
In this interview with John Savage they discuss tax and lease extensions and the tax implications that may arise if a lease extension is carried out some time after the freehold has been purchased.
Tax and lease extensions
Introduction – What is the problem?
A lot of people think that when they have purchased their freehold to their block that is the end of the story and that they do not need to do anything else to protect their position. However, that is not always quite right as this article explains. There may be a ‘sting in the tail’ if you delay extending your leases to 999 years having bought out the freehold.
Do we still need the leases? – We have just bought the freehold, we can just cancel them can’t we?
Firstly, it is important to realise that if you buy the freehold to your building the leases will still need to remain in place, so the leases cannot just be ‘cancelled.’ The leases will regulate the legal relationship between the flat owners and the freeholder. The freehold owner will normally be a company incorporated by the flat owners for this purpose in which they own a share and which has a separate legal identity.
How to wear two hats
Even in a situation where all of the flat owners have taken part in the purchase of the freehold it is important to realise that there are separate and distinct legal relationships and that every person who has taken part in the purchase of the freehold wears ‘two hats’, one as a shareholder in (and perhaps as a director of) the freehold company and the other, as a long leasehold flat owner … continuing reading the article PDF here “Why bother extending your lease when you have just bought the freehold?“.
If you are in a situation where you have purchased the freehold to your building and not yet extended your leases there could be a tax liability for both the freehold company and the individual flat owners.
If you have any questions concerning tax and lease extensions or want to discuss the issues raised further, please contact Gina Fairfax by emailing firstname.lastname@example.org or by telephoning 020 7631 4141 and asking to speak to a member of the Private Client Tax team.