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HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
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Leases: grant of lease out of short lease: sub-lease at higher rent

TCGA92/SCH8/PARA4 (2) (b)

When a sub-lease is granted out of an existing lease, the rent payable under the sub-lease may be higher than the rent payable under the original lease. In such circumstances, the premium chargeable for the sub-lease will usually be lower than it would have been if the rental terms of the sub-lease had been the same as those of the original lease.

Where this is the case, and both the sub-lease and the original lease are short leases, the amount of the expenditure allowable under TCGA92/S38 (1)(a) and (b) is reduced.

Initially, the expenditure is calculated in the manner set out in CG71001. This amount is then multiplied by the fraction:

Actual premium
 
Notional full premium

The `notional full premium’ is the premium which would have been received if the rent payable under the sub-lease had been the same as the rent payable under the original lease.

If the rent payable under the sub-lease is less than the rent payable under the original lease, there is no corresponding increase in the allowable expenditure on the grant of the sub- lease.

If you meet a case in which the rent charged under the sub-lease is greater than the rent payable under the original lease, you should obtain, by way of a memo setting out the full facts, the Valuation Office Agency’s opinion of the `notional full premium’.