Leases: grant of lease out of short lease: part of land sub-let
Mr P acquired a 55 year lease over a property in return for a premium of £30,000. The annual rent payable was £5,000. Eight years later he sub-let part of the property on a 21 year lease in return for a premium of £10,000. The annual rent payable under the sub-lease was £2,000.
The Valuation Office Agency stated that:
- the value of the original lease at the date the property was sub-let was £50,000;
- the amount included in the £50,000 which related to the part sub-let was £15,000;
- the notional full premium for the part sub-let would be £12,000.
The gain accruing to Mr P is then calculated as follows.
I) Amount chargeable as property income:
|£10,000||-||(£10,000 x 20)||=||£6,000|
ii) Expenditure attributable to the part disposed of:
iii) Fraction which will waste away over the term of the sub-
Factor for 55 years (term of original lease when acquired): 100
Factor for 47 years (remaining term of original lease when sub-lease granted): 98.902
Factor for 26 years (remaining term of original lease when sub-lease expires): 82.496
Fraction which will waste over term of sub-lease:
|98.902 - 82.496||=||16.406|
iv) Restriction under TCGA92/SCH8/PARA4 (2)(b), see CG71007:
|notional full premium||£12,000|
v) Allowable expenditure on grant of sub-lease:
vi) Gain accruing on grant of sub-lease:
|less||Indexation 1,231 x 0.566||697|
|less||Amount chargeable as property income||6,000|
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+.