Conversion of leasehold land to freehold

[Sanjiv Chatterjee]

A family held a pece of land on leasehold basis for the last 90 years and also constructed 2 houses on it & used it for residential purposes. It plans to convert the land to freehold and sell it immediately.

Query is:

1. Will this be sale of a long term asset or short term?

2. Will the conversion fees tantamount to cost of improvement?

3. How is the leasehold land to be valued?

[CAGOPALJI AGRAWAL]

Before replying your query, it would be advisable to through the lease deed first. Generally, the freehold charges would be capitalised. The long /short term status would be ascetained from the date of vesting of interest in the property.

AI Summary

Leasehold to freehold conversion affects capitalisation of conversion charges and holding period determination for asset classification.
Conversion of leasehold to freehold for sale raises: whether the sale is long-term or short-term determined from the date of vesting of interest; whether conversion fees should be capitalised; and valuation of the leasehold land. The adviser recommends reviewing the lease deed, notes that freehold charges are generally capitalised, and states holding-period status is ascertained from the date interest vests.