CG71200 - Short leases: disposal: relief given under ITTOIA05/S61 or CTA09/S63

ITTOIA05/S61 & CTA09/S63

If a premium is paid for the acquisition of a short lease, and the person acquiring the lease then uses the property for the purposes of his or her trade, profession or vocation, relief under ITTOIA05/S61 or CTA09/S63 may be available, see BIM46250 onwards.

On a subsequent disposal of the lease, the allowable expenditure is reduced by the amount of the relief actually given to that person under ITTOIA05/S61 or CTA09/S63. This reduction is made before the reduction required by TCGA92/Sch 8/Para 1 (4).

How this rule works in practice is illustrated by the following example.

Example

Mr W acquired a 31 year lease of a property on 31 January 2014. He paid a premium of £20,000. On 31 January 2020, he disposed of the lease for £25,000. Between January 2014 and January 2020, he used the property for the purposes of his trade of motor mechanic. He was given relief under ITTOIA05/S61 of £1,550.

Mr W’s gain on the disposal of the lease is calculated as follows:

Allowable expenditure

Cost of lease	£20,000
Less relief given under ITTOIA05/S61	£1,550
	£18,450

Amount excluded under TCGA92/Sch 8/Para 1 (4):

[ ( P(1) - P(3) ) / P(1) ] x expenditure otherwise allowable under S38(1)(a)

P (1) is the percentage derived from the table in TCGA92/Sch 8/Para 1 (6) for the duration of the lease at the beginning of the period of ownership;

P (3) is the percentage derived from the table in TCGA92/Sch 8/Para 1 (6) for the duration of the lease at the date of disposal.

= [ (88.371-81.100) / 88.371 ] x £18,450

= £1,518

Total allowable expenditure:

Allowable expenditure	£18,450
Less Amount excluded under Sch 8 Para 1 (4)	£1,518
	£16,932

Chargeable gain

Disposal proceeds	£25,000
Less allowable expenditure	£16,932
	£8,068