My husband and I own a flat in a council-owned building. We extended the existing lease. We are now gifting the flat to our son. Can we include: (1) the money we paid to the council (freeholder) as a cost in our capital gains tax (CGT) calculation; and (2) the cost of the professional company that did all the paperwork and negotiation with the freeholder to extend the lease? 

Arthur Weller replies:  

(1) You can claim the cost you paid to the council (freeholder) as a cost in your CGT calculation. This goes for the original purchase of the flat and also for the extension of the lease (see HMRC’s guidance at tinyurl.com/2p99h25x) although, there, it discusses the subsequent purchase of the freehold), (2) See HMRC’s Property Income manual at tinyurl.com/2p92uxar, which states: ‘The normal legal and professional fees incurred on the renewal of a lease are also allowable if the lease is for less than 50 years.’ This implies that if the lease extension is for more than 50 years, the costs involved are capital in nature.