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HMRC internal manual

Capital Gains Manual

Leases: grant of lease out of short lease: example 1

Mr W paid a premium of £30,000 to acquire a 55 year lease on a property. Seven years later he granted a 30 year sub-lease over the whole property in return for a premium of £40,000. The rent payable under the sub-lease was the same as the rent payable under the original lease.

Although the original lease was a long lease when it was acquired, it had become a short lease by the time that the sub-lease was granted as its remaining term was then 48 years.

i) Mr W’s allowable expenditure on the grant of the sub-

lease, see CG71001-CG71002, is:

£30,000 x 99.289 - 68.697 = £9,178


ii) The amount of the premium chargeable as property income,


see CG70900, is:

£40,000 - (£40,000 x 29) = £16,800


iii) The gain accruing to Mr W is:



  Premium   40,000
less Allowable expenditure    
    Unindexed gain 30,822
less Indexation 9,178 x 0.460   4,222
    Indexed gain 26,600
less Amount chargeable as property income   16,800
    Chargeable gain 9,800



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+.