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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Leases: grant of lease out of short lease: capital improvements by tenant


If a lease is granted on terms which require the tenant to undertake capital improvements to the property, the value of the landlord’s interest in the property will be increased. This increase in value, which will not necessarily be the same as the cost incurred by the tenant, is treated for Schedule A purposes as being a premium, in addition to any other premium which is paid, by virtue of ICTA88/S34 (2), see AP1484.

Where a landlord is charged to Income Tax under ICTA88/S34 (2) in the above circumstances, the amount of the deemed premium should be treated as expenditure incurred by the landlord at the time that the lease was granted, TCGA92/SCH8/PARA7. This expenditure is to be taken into account in the computation of the gain arising on the grant of the lease, that is, it is treated like any other expenditure which satisfies the terms of TCGA92/S38 (1)(b).