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HMRC internal manual

Capital Gains Manual

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 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 ITTOIA05/S61 of £1,550.

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

i) Allowable expenditure:

= Cost of less - relief given under ITTOIA05/S61

= £20,000 - £1,550

= £18,450

 

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

= [ ( P(1) - P(3) ) / P(1) ] x £18,450

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

= £1,518

 

iii) Total allowable expenditure:

= Allowable expenditure - Amount excluded under Sch 8 Para 1 (4)

= £18,450 - £1,518

= £16,932

 

iv) Chargeable gain:

= £25,000 - £16,932

= £8,068