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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Leases: disposal of lease: following application of ESC D39

ESC/D39

Where ESC/D39 has applied, and the extended lease is subsequently disposed of, the following rules apply.

i) The extended lease is treated as having been acquired on the date that the original lease was acquired.

ii) If the original lease was acquired before 1 April 1982, and the extended lease is disposed of after 5 April 1988, the rebasing rules, see CG16700+, will apply. However, the lease which is to be valued at 31 March 1982 is the lease which existed at that time.

Thus, if the lease was extended after 31 March 1982, it is the remaining term of the original, unextended lease which is to be valued at that date. That value is then ‘wasted’ (if appropriate) by reference to the duration of the extended lease.

Example

Mr P acquired a 25 year lease over a property on 31 March 1970. On 31 March 1986, when the original lease had nine years left to run, he was granted a 45 year extension of the lease. The terms of ESC/D39 were satisfied and Mr P requested that the concession should apply. The consequences are as follows.

  • If he disposed of the extended lease after 5 April 1988, the asset to be valued at 31 March 1982 would be the original lease which then had 13 years left to run.
  • If he disposed of the extended lease between 6 April 1988 and 31 March 1990, the ‘wasting’’ rules in TCGA92/SCH8/PARA1, see CG71141-CG71163, would not apply as the remaining term of the lease would be more than 50 years.
  • If he disposed of the extended lease after 31 March 1990, the wasting rules in TCGA92/SCH8/PARA1 would apply. The factor P(3), see CG71144, would be calculated by reference to the remaining term of the extended lease.