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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Leases: example: sale of freehold and leaseback

On 30 June 1987, Mr M bought the freehold of a property for £60,000. On 30 June 1992, he sold the property for £80,000 plus the grant of a 25-year lease at a rent of £10,000 a year.

The Valuation Office Agency reported that the market value of the lease was £30,000.

The gain accruing to Mr M is calculated as follows.

  Disposal proceeds     80,000
less Allowable expenditure 60,000 x 80,000 = 43,636
    80,000 + 30,000    
less Indexation allowance 43,636 x 0.367   16,014
    Chargeable gain    20,350

NOTE. If a taxpayer is within the charge to Capital Gains Tax, neither indexation allowance nor taper relief apply to disposals of assets on or after 6 April 2008. Previously indexation allowance had been frozen at April 1998. Companies and other concerns within the charge to Corporation Tax are not affected by these changes. For indexation allowance see CG17207+ and for taper relief see CG17895+.