Potential CGT and SDLT liabilities when assigning leaseholds

by **qaz843** on Wed Oct 19, 2011 4:41 pm

Hi,

I am new member and was referred to TaxationWeb when attempting to get advice from another forum.

I was hoping someone could give me some advice regarding potential CGT and SDLT liabilities when creating and assigning leaseholds?

I own the freehold of a building which has been converted into and rented as self contained flats (many years ago). I wish to retain the all the units and refinance at the best LTV (against the best possible valuation) in order to raise capital.

It may be the case I need to create separate leaseholds for each flat in order to obtain the best possible valuation from a commercial lender (or to try and get individual BTL mortgages against each flat). If the freehold is owned by me + business partner and I assign the leasehold to just myself (and some to just my business partner) what are the tax implications (to both freeholder and leaseholder)? As I believe the combination of names on the freehold will be considered a different entity to just the one name on the leasehold.

Thank you in advance.

by **section 44** on Wed Oct 19, 2011 4:52 pm

I assume that you mean that you would together grant (not assign) leases.

CGT: You would each make a part disposal.

SDLT: There would be an exhange by each of you.

by **qaz843** on Wed Oct 19, 2011 5:51 pm

Yes I meant grant leases as opposed to assign.

I think you meant both freeholder and leaseholder would each would have to pay CGT - is that correct?

If the leaseholds were granted for free then that would presumably be sufficient to stop the freeholders pay CGT BUT would leave the leaseholder with an even bigger liability if they were to sell. Also, if the leaseholder does an immediate remortgage when granted the leasehold is there any CGT to be paid.

I dont understand what you meant re the SDLT. Can you please elaborate?

Thanks.

by **section 44** on Wed Oct 19, 2011 8:42 pm

qaz843 wrote:I think you meant both freeholder and leaseholder would each would have to pay CGT - is that correct?

No, I meant that each of you (as a co-owner of the freehold) would make a part disposal of your share of the freehold.

qaz843 wrote:If the leaseholds were granted for free

Even if there wasn't monetary consideration, there would be a barter (i.e. the only reason a lease would be granted to you would be because of the grant to your business partner). The leases would not be granted for free.

qaz843 wrote:I dont understand what you meant re the SDLT. Can you please elaborate?

The only reason a lease would be granted to you would be because of the grant to your business partner (i.e. an exchange). Each of you would incur an SDLT liability based on not less than 50% of the market value of the lease that you acquire (in addition to any SDLT on rent).

by **Incredulum** on Thu Oct 20, 2011 10:04 am

section 44 wrote:Even if there wasn't monetary consideration, there would be a barter (i.e. the only reason a lease would be granted to you would be because of the grant to your business partner). The leases would not be granted for free.

And indeed even if there is no barter transaction market value must still be assumed.

Is there not scope for the CGT rollover relief for exchange of interests in land? http://www.hmrc.gov.uk/manuals/cgmanual/cg73015.htm

by **qaz843** on Mon Oct 24, 2011 4:02 pm

Even if there wasn't monetary consideration, there would be a barter (i.e. the only reason a lease would be granted to you would be because of the grant to your business partner). The leases would not be granted for free.

And indeed even if there is no barter transaction market value must still be assumed.

So even if it was granted to a third parties (e.g. spouse) - to avoid the barter problem CGT would still be an issue? Or if it is the spouse element which is an issue then how about a ltd?

by **qaz843** on Mon Oct 24, 2011 4:10 pm

Is there not scope for the CGT rollover relief for exchange of interests in land?

I'm not sure what CGT rollover relief is - forgive my ignorance here! But this seems the exact kind of provision i hoped for there to be in place!

The link you provided seems to suggest it is applicable in a situation whereby:
"a number of separate holdings of land are held jointly and, as a result of the exchange, each joint owner becomes sole owner of one or more holdings"
Translating to layman terms - I think that should apply to my situation described in my original post...

However it also states:
The relief under the concession applies to disposals made before 6th April 2010.

...?

by **Incredulum** on Mon Oct 24, 2011 5:57 pm

Transactions with a spouse (with whom you live) are CGT free. Is your business partner your spouse?

Re the extra-statutory concession's end date, if you read on "The terms of the concession have been legislated and in the case of disposals made on or after 6th April 2010 the relief is given by TCGA 1992/S248A - 248E, see CG73000."

by **qaz843** on Tue Oct 25, 2011 2:56 pm

Incredulum -

Transactions with a spouse (with whom you live) are CGT free. Is your business partner your spouse?

Unfortunately my business partner is not a spouse but I was suggesting perhaps granting the leaseholds to spouse which seems plausible if there is no CGT as you state.
So sons and daughters over 18 are considered spouse and therefore granting them leaseholds will not lead to any CGT liability when doing so? Do sons and daughters need to have their registered primary address is at the same address as me.

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CG37000 refers you onto CG73002+.

CG73002 states:

CG73002 - Land: exchange of joint interests: conditions for relief
TCGA 1992/S248A

Roll-over relief under TCGA92/S248B applies where five conditions are met. These are:

1- a person ("the landowner") and one or more other persons ("the co-owners") jointly hold
a holding of land, or two or more separate holdings of land

2- the landowner disposes of an interest ("the relinquished interest") in the holding, or one or more of the holdings, to the co-owner or one or more of the co-owners.

3- the consideration for the disposal is or includes an interest ("the acquired interest") in a holding of land held jointly by the landowner and one or more of the co-owners.

4- as a consequence of the disposal (together with any related disposals) the landowner and each of the co-owners become —
in the case of a single holding, the sole owner of part of the holding, or
in the case of two or more holdings, the sole owner of one or more of the holdings.

5- the acquired interest is not an interest in excluded land (TCGA92/248C, see CG73010).

Thanks.

by **Incredulum** on Tue Oct 25, 2011 3:04 pm

qaz843 wrote:So sons and daughters over 18 are considered spouse and therefore granting them leaseholds will not lead to any CGT liability when doing so? Do sons and daughters need to have their registered primary address is at the same address as me.

Only spouses are spouses. And the law does not permit you to marry your children.