SELL
Managing Director of Kay & Co, central London estate agency
Q. I want to sell my flat and it has 76 years left on the lease. Should I extend it first?
A. Provided you have owned your flat for two years under Chapter II of Part 1 of The Leasehold Reform, Housing and Urban Development Act 1993 (the Act), you have the right not to extend your existing lease, but to acquire a new lease in place of the existing lease which is at a peppercorn (nominal) rent, and for a term expiring 90 years after the term date of the existing lease. The premium you pay is subject to a series of calculations and you should seek a surveyor’s advice, specialising in leasehold reform to assist you. I would not always advocate a seller extending prior to a sale, particularly in your case where your lease is still relatively long. There is often not a massive difference in the price that you will get for the property, particularly in a buoyant market, the benefit comes with making the property easier to sell. What you should do, however, is to get a valuation of the likely premium that you will have to pay from a surveyor. This report can then be shown to prospective buyers so they will be aware of what the cost of the extension is likely to be. Should the buyer wish, as the registered proprietor of the property for at least two years, you can serve what is known as a Section 42 notice to apply for a new lease under the Act between exchange and completion. You can then assign the benefit of that notice to the new owner so that they effectively take over from you and do not have to wait two years to purchase the new lease. This way you do not lay out any additional capital and any risk is down to them.
Q. I am selling my house for £2m. It is owned in the name of an offshore company and I want to offer the buyer the option to buy the company so they can save on stamp duty. Am I able to ask a higher price because of this?
A. Currently it is possible to avoid paying the full rate of Stamp Duty Land Tax (SDLT) if you sell the shares in a company owning a property rather than the property itself. At £2m the buyer would ordinarily have to pay SDLT at a rate of five per cent on the full amount, so in this case £100,000. However, were you to sell the shares in the company they would only be liable to pay at a rate of 0.5 per cent or £10,000, so a potential saving of £90,000. Depending on the buyer’s exact financial position this can be appealing, particularly when the savings are large. You might be able to negotiate a deal with the buyer whereby they purchase the company and you split the saving. My advice would be to do this after you agree the price, otherwise you may find that it muddies negotiations. However, the government is looking very closely at this “loophole” and has given clear indications that it intends to close it in the next budget, so there is a possibility that it might take measures to charge the tax on such transactions retrospectively.