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Capital Gains Manual

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Short leases: disposal of lease wasting asset at 6/4/65

If a lease is disposed of which was owned by the person making the disposal at 6 April 1965 and it was a wasting asset at that time, you may have to consider the interaction of time-apportionment, see CG15570+, with the wasting asset provisions.

Alternatively, you may need to consider the effect of an election under TCGA92/SCH2/PARA17 for a valuation at 6 April 1965, see CG15525+.

Neither of the above matters will need to be considered if:

  • the lease is disposed of on or after 6 April 1988, and
  • an election under TCGA92/S35 (5), see CG16760+, has been made.

The example which follows illustrates the effects of

  1. time-apportionment;
  2. an election for valuation at 6 April 1965

when the subject of the disposal is a lease which was a wasting asset at 6 April 1965.

Miss J acquired a 75 year lease on 6 April 1955 paying a premium of £5,000. On 6 April 2012, she assigned the lease in return for a premium of £30,000.The Valuation Office Agency reported that:

  • the value of the lease at 6 April 1965 was £18,000;
  • the value of the lease at 31 March 1982 was £20,000.

The alternative calculations are as follows.

  1. Rebasing calculation

Value of lease at 31 March 1982: £20,000

Exclusion from allowable expenditure, see CG71144:

P(1) - P(3) x £20,000
     
P(1)    
= 99.289 - 68.697 x £20,000 = £6,162
           
  99.289        

Allowable expenditure: £20,000 - £6,162 = £13,838

Computation of gain:

    £
     
  Disposal proceeds 30,000
less Allowable expenditure: 13,838
     
  Gain 16,162
  1. Historic cost calculation: time-apportionment

Original cost: £5,000

Exclusion from allowable expenditure:

P(1) - P(3) x £5,000
     
P(1)    
= 100 - 68.697 x £5,000 = £1,565
           
  100        

Allowable expenditure: £5,000 - £1,565 = £3,435

Computation of gain:

    £
     
  Disposal proceeds 30,000
less Allowable expenditure: 3,435
     
  Gain 26,565

Time-apportionment: part of gain arising after 6 April 1965:

£26,565 x Period of ownership after 6 April 1965
     
    Entire period of ownership
= £26,565 x 47
       
      57

Gain: = £21,904

  1. Historic cost calculation: election for valuation at 6 April 1965

Value at 6 April 1965: £12,000

Exclusion from allowable expenditure:

P(1) - P(3) x £12,000
     
P(1)    
= 10068.697 x £12,000 = £3,756
           
  100        

Allowable expenditure: £12,000 - £3,756 = £8,244

Computation of gain:

    £
     
  Disposal proceeds 30,000
less Allowable expenditure: 8,244
     
  Gain 21,756