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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Leases: grant of lease out of short lease: computation of gain


Where a short lease is granted out of a short lease, a part of the premium received will be chargeable under Schedule A, see CG70900. This amount must be excluded when arriving at the gain accruing on the grant of the sub-lease.

The way in which this is done is by initially using the full amount of the premium as the consideration for CGT purposes. After calculating the indexed gain, the amount chargeable under Schedule A is deducted to arrive at the chargeable gain.

However, this deduction cannot transform an indexed gain into an allowable loss, nor can it increase the amount of an indexed loss - TCGA92/SCH8/PARA5 (2).

The method of computing the gain in these circumstances is illustrated by the following two examples.