Leases: grant of lease out of short lease: restriction of capital loss
Miss P acquired a 40 year lease on a property, paying a premium of £30,000. She attempted to sub-let the property, but had difficulty in finding a tenant. Five years later she granted a 21 year sub-lease of the property for a premium of £5,000. The rent payable under the sub-lease was the same as that payable under the original lease.
The computation of the loss accruing to Miss P is as follows.
i) Prior to the grant of the sub-lease, Miss P was entitled to a deduction under ITTOIA05/S292 or CTA09/S232, see PIM2320, of £165 for each year.
ii) Amount of premium received on grant of sub-lease chargeable as property income is:
|£5,000||-||(£5,000 x 20)||=||£3,000|
iii) The total deductions from the rent under ITTOIA05/S292 or CTA09/S232 over the term of the sub-lease are:
£165 x 21 = £3.465 - £3,000 (premium
received on grant of sub-lease) = £465
iv) Miss P’s allowable expenditure on the grant of the sub- lease, see CG71001, is:
|£30,000||x||91.981 - 58.971||=||£10,375|
v) Miss P’s loss is then calculated as follows:
|less||Indexation 10,375 x 0.369||3,829|
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+.