Am I going to pay tax on a lease extension as a landlord?

I am a freeholder.  The flat owner is going to pay me a premium to extend his lease. Am I going to pay any tax on that?

The answer to this is that ‘it depends.’

Assuming that there will be a capital gain on the disposal when the lease is granted then the answer is probably ‘yes’.

The exception may be a situation where a Notice is served under the legislation and you are able to ‘roll over’ the gain because you plan to reinvest in another qualifying asset (ie property) this suits owners of freeholds who act as investor.

If you own an individual freehold or happen to have a leasehold property attached to your freehold property you will receive a lease extension premium then these considerations are unlikely to apply and it is likely that you will have a capital gain to declare on the ‘disposal’ i.e. the sale of the lease to the tenant.

Different considerations apply if you are a freehold company (owned by the flat owners) and you are granting yourselves lease extensions.

Expert advice should be taken as to your tax status which is likely to depend on your own status – (for instance there may be certain exemptions or allowable expenditure that you can take advantage of). For further advice you will need to consult a professional practice with a tax department or an accountant or other tax advisor.