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HMRC internal manual

Capital Gains Manual

Leases: grant of lease out of short lease: introduction

Where a short lease, that is a lease for a term of not more than 50 years, is granted out of a short lease, a number of special rules apply.

  • The part disposal formula in TCGA92/S42 does not apply, see CG71001.
  • The full amount of any premium is taken as the consideration for CGT purposes, even though part of that premium will be chargeable as property income. A deduction for the amount chargeable as property income is then made after calculating the indexed gain, see CG71003-CG71004. However, this deduction cannot turn an indexed gain into a loss, nor can it increase the amount of an indexed loss.
  • The allowable expenditure is reduced if the rent payable under the sub-lease is greater than the rent payable under the original lease, see CG71007.
  • Where only part of the land is sub-let, the allowable expenditure is reduced, see CG71012.
  • In certain circumstances, the capital loss arising on the grant of a sub-lease is reduced, see CG71016.

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+.