Tax advice of the week: A handy leasehold loophole
Jun 01, 2012
As a rule, using a company solely to hold investments “doesn’t make good tax sense”, but leasehold properties might be an exception, says Tax Tips & Advice. They are normally treated in a similar fashion to wasting assets, so you may not be able to claim a capital gains tax (CGT) loss if you sell one for less than you paid. However, this changes if you hold the property in a company.
Say John buys a 20-year lease on a holiday park unit for £80,000, puts it in a company and uses it with his family for 20 years until the leasehold expires and is worth nothing. The resulting loss of around £80,000 will count for CGT purposes, saving him up to £22,400 in CGT at current rates. That’s because a company’s shares “can be valued in different ways depending on what it does”. Shares in a company like John’s, which “only holds assets will be valued on how much these are worth”.
Shares in John’s company are worth £80,000 at the outset and nothing after 20 years. “But because shares aren’t wasting assets, the reduction in their value would create an allowable CGT loss, which John can use against other gains in the future”.