Leases: disposal: extension of lease: ESC D39
The terms of a particular lease may provide for its extension if the tenant so requests. If such a request is made, the extension of the lease does not have any immediate Capital Gains Tax consequences.
However, the extension of a lease outside its original terms entails the surrender of the old lease and the grant of a new one. The surrender of the old lease is a disposal for Capital Gains Tax purposes with the consideration received being the value of the new lease.
In practice, the surrender of an existing lease and the grant of a new lease should not be treated as a disposal for Capital Gains Tax purposes if the taxpayer so wishes and all of the following conditions are satisfied:
- the transaction, whether made between connected or unconnected parties, is made on terms equivalent to those that would have been made between unconnected parties bargaining at arms length;
- the transaction is not part of or connected with a larger scheme or series of transactions;
- a capital sum is not received by the tenant;
- the extent of the property under the new lease is the same as that under the old lease;
- the terms of the new lease (other than its duration and the amount of rent payable) do not differ from those of the old lease. Trivial differences should be ignored.