Leases: grant of lease out of short lease: example 2
The facts are the same as for the example in CG71003.
Mrs S paid a premium of £20,000 to acquire a 30 year lease over a property. Five years later she granted a sub-lease for 10 years over the whole property in return for a premium of £15,000. The rent payable under the sub-lease was the same as the rent payable under the original lease.
I) Mrs S’s allowable expenditure on the grant of the sub-
lease, see CG71001, is:
|£20,000||x||81.100 - 61.617||=||£4,462|
ii) The amount of the premium chargeable as property income,
see CG70900, is:
|£15,000||-||(£15,000 x 9)||=||£12,300|
iii) The gain accruing to Mrs. S is:
|less||Indexation 4462 x 0.367||1,638|
|less||Amount chargeable as property income||12,300|
Since the deduction of the amount chargeable as property income cannot transform an indexed gain into an allowable loss, the result in this case is no gain/no loss.
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+.