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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Private residence relief: realising gain: acquisition of freehold

In January 2004 an individual acquires a 99 year lease of a dwelling house with 63 years of the lease remaining, at a cost of £60,000. He uses the dwelling house as his only residence. In 2013 he decides to sell the house. To increase its value he acquires the freehold for a payment of £40,000 in February 2013. The house is sold in March 2014 for £250,000. The Valuation Office Agency agrees that if the leasehold interest had been sold in March 2014 it would have fetched £160,000.

The part of the gain which is excluded from relief because of the application of TCGA92/S224 (3) is computed as follows.

  Total Gain Exempt Gain Non-exempt gain
  £ £ £
1) Disposal proceeds 250,000    
2) Value of leasehold interest   160,000  
Consideration resulting from      
acquisition of freehold (1) - (2)     90,000
less Cost of leasehold 60,000 60,000  
less Cost of freehold 40,000   40,000
Gain 150,000 100,000 50,000

The chargeable gain is £50,000 subject to annual exempt amount.