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HMRC internal manual

Capital Gains Manual

Leases: part of premium chargeable as property income

ITTOIA05/S287 and CTA09/S227

Where a premium is paid for a short lease, that is a lease of not more than 50 years duration, part of that premium will be chargeable as property income, see PIM1200. The amount chargeable as income is arrived at by the following formula:

P - [ (P x Y) / 50 ]


P is the amount of the premium;

Y is the number of years, other than the first, in the term of the lease.


A 25 year lease is granted for a premium of £40,000. The amount chargeable as income is:

£40,000 - [ (40,000 x 24) / 50 ] = £40,000 - £19,200 = £20,800

Effect on capital gains computation

TCGA92/Sch 8/Para 5 & TCGA92/Sch 8/Para 6

The amount of a premium paid for the grant of a short lease which is chargeable as income is excluded from the consideration taken into account for capital gains purposes. The precise way in which this is done depends on whether:

  • The lease was granted out of a freehold or long lease, see CG70950P, or
  • The lease was granted out of a short lease, see CG71000P.

The precise rules are contained in TCGA92/Sch 8/Para 5 and TCGA92/Sch 8/Para 6.

TCGA92/S37, the general provision regarding amounts chargeable to Income Tax, see CG14303 onwards, is specifically over-ridden by TCGA92/Sch 8/Para 5 (6).