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HMRC internal manual

Capital Gains Manual

Leases: introduction: Leases of land in the UK - Introduction to the Guidance

A lease is an interest in land (or a real right in Scotland).

The grant of a lease out of a freehold interest or out of leasehold interest is a part disposal of an interest in land so there are consequences for tax purposes. Equally the disposal of a lease, alteration of its terms or mergers can also have capital gains consequences. A short lease, one with less than 50 years to run, is a wasting asset for capital gains tax purposes, so special rules apply where these are concerned.

This guidance sets out detail on the nature of a lease and the appropriate treatment in various circumstances.

Layout of the Guidance

The Introductory section at CG70700P sets out the definition of a lease, looks at certain different types of leases and introduces the concept of a short lease. It also introduces the granting of a lease and consider sale and leaseback arrangements.

The Granting of a Lease section at CG70800P looks at the circumstances where a long lease or short lease is granted, the implications of any premium or reverse premium that is paid, and looks at the interaction with property income.  The specific guidance on Premiums as Property Income is at CG70900P.  The grant of leases (long and short) out of freeholds or long leases is at CG70950P, the grant of a short lease out of a short lease is at CG71000P.

The Disposal of a Lease section at CG71100P looks at the circumstances where a lease is disposed of; again there are different rules for disposing of a short or long lease and these are set out.  The issues of payments made or received in connection with a disposal are considered along with the Extra Statutory Concession D39 which may apply where a lease is extended.

Issues involving the Alteration of Terms in a Lease are considered at CG71350P.

Finally, the Merging of Leases is considered at CG71400.