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HMRC internal manual

Capital Gains Manual

Leases: grant of lease out of a 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 gain, see CG71004. However, this deduction cannot turn a gain into a loss, nor can it increase the amount of a 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 * - For companies the deduction is taken after indexation is deducted.  Again the deduction cannot create or augment a loss.