By Sharron Carle, Tax Partner, Winslows
Tax issues on collective enfranchisement/right of refusal transactions
Property lawyers familiar with collective enfranchisement are usually very familiar with the conditions to be satisfied for claiming relief under section 74 Finance Act 2003 to ensure that SDLT is chargeable on the average price.
Complexities can however occur in the following scenarios:
- one or more of the leases involved has a term of less than 21 years remaining
- the freehold includes property that is non-residential or six or more dwellings
- one or more of the participating tenants is a company
- one or more of the participating tenants are not UK resident for SDLT purposes
Additional matters that need to be considered:
- Grants of new extended leases to participating tenants post enfranchisement
- Are there any variations proposed with regards to those leases in terms of demise or are leases over additional space in the building proposed.
- Has the enfranchisement transaction been structured carefully to ensure the process during and any leases granted afterwards are SDLT and CGT efficient
- Freehold includes non-residential property
- Have capital allowances been claimed by the landlord with regards to any non-residential/common parts
- Has the landlord opted to tax such that VAT could be chargeable with respect to non-residential elements of the Property
- Circumstances where Relief is not available under section 74 Finance Act 2003
- Landlord’s CGT
- Computation of the tax chargeable on any potential gain
- Consideration of conditions to defer of any CGT under section 234 TCGA 1992
Tax Issues for Lease Extensions
- Does the lease extension involve a tenant controlled company or arrangement with a third party landlord
- Will there be any variation of the demise on the extension or will there be any leases granted in respect of additional space
- If there is a tenant controlled company, is there evidence of a declaration of trust
- Have SDLT and CGT implications been considered for the parties
- Is the tenant an individuals or companies and are they holding the property as investment or is it their main residence
- Is either the client (i.e. landlord or tenant) UK resident for either SDLT purposes or for the purposes of income and gains
For firms that do not have a property tax lawyer why not put the Winslows Property Tax Helpdesk in place?