Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Capital Gains Manual

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/Sch 2/Para 17 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 CG16760P, 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.

Example

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

i) Exclusion from allowable expenditure, see CG71141:

= [ ( P(1) - P(3) ) / P(1) ] x £20,000

= [ (99.289 - 68.697) / 99.289 ] x £20,000

= £6,162

ii) Allowable expenditure:

= £20,000 - £6,162 = £13,838

iii) Computation of gain:

= £30,000 - £13,838

= £16,162

 

2) Historic cost calculation: time-apportionment

Original cost: £5,000

i) Exclusion from allowable expenditure:

= [ ( P(1) - P(3) ) / P(1) ] x £5,000

= [ (100 - 68.697) / 100 ] x £5,000

= £1,565

ii) Allowable expenditure:

= £5,000 - £1,565 = £3,435

iii) Computation of gain:

= £30,000 - £3,435

= £26,565

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

= £26,565 x (Period of ownership after 6 April 1952 / Entire period of ownership)

= £26,565 x (47/57)

= £21,904

 

3) Historic cost calculation: election for valuation at 6 April 1965

Value at 6 April 1965: £12,000

i) Exclusion from allowable expenditure:

= [ ( P(1) - P(3) ) / P(1) ] x £12,000

= [ (100 - 68.697) / 100 ] x £12,000

= £3,756

ii) Allowable expenditure:

= £12,000 - £3,756 = £8,244

iii) Computation of gain:

= £30,000 - £8,244

= £21,756