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HMRC internal manual

Capital Gains Manual

Short leases: disposal: relief given under ICTA88 S87


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 ICTA88/S87 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 ICTA88/S87. This reduction is made before the reduction required by TCGA92/SCH8/PARA1 (4).How this rule works in practice is illustrated by the following example.

Mr W acquired a 31 year lease of a property on 31 January 2007. He paid a premium of £20,000. On 31 January 2013, he disposed of the lease for £25,000. Between January 2007 and January 2013, he used the property for the purposes of his trade of motor mechanic. He was given relief under ICTA88/S87 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 ICTA88/S87: 1,550
Less: amount to be excluded, TCGA92/SCH8/PARA1 (4):  
P(1) - P(3) x £18,450 = 88.371 - 81,100 x £18,450 = 1,518
P(1)       88.371        

Computation of gain:

  Disposal proceeds 25,000
less Allowable expenditure: 16,932
  Gain 8,068