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HMRC internal manual

Capital Gains Manual

Leases: disposal: introduction

There are two basic methods by which a disposal of a lease can take place: 

  • assignment,
  • surrender.

Where a lease is assigned, the tenant passes all the benefits and obligations of the lease to the new tenant (‘the assignee’).

Where a lease is surrendered, it is passed back to the landlord and will normally merge with the landlord’s superior interest (that is, the landlord’s freehold or superior leasehold interest).

Whether a lease is assigned or surrendered, the tenant will have disposed of his entire interest in the lease. The guidance at CG71120-CG71200 applies equally to assignments and surrenders. The guidance at CG71210 only applies to an assignment of a lease and the guidance at CG71230-CG71300 only applies to the surrender of a lease.

A part-disposal of a lease will occur if the tenant grants a sub-lease of the whole or part of the property covered by the lease. This is a part-disposal because the tenant will have retained a part of his original interest in the property. The guidance on dealing with such cases is at CG70950-71018.

There will also be a disposal or part-disposal of the lease if a capital sum is derived from it, TCGA92/S22.

If the parties to the transaction are connected, see CG14560+, or the transaction is not at arms length, the disposal will be deemed to have taken place at market value, see CG14530+.