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.
|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|
Computation of gain: