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HMRC internal manual

Capital Gains Manual

Leases: capital sum received for alteration of terms: introduction

TCGA 92/Sch 8/Para 3

 

A landlord may receive a capital sum from a tenant in return for the variation of one or more of the terms of a lease or for the commutation of the rent due under the lease. The way in which the gain accruing to the landlord is calculated depends principally on three factors:

  1. whether the payment was made in commutation of the rent due under the lease, TCGA92/Sch 8/Para 3 (2), or whether it was made for the variation or waiver of one or more of the terms of the lease, TCGA92/Sch 8/Para 3 (3); and
  2. if the payment was made in commutation of the rent due, whether the terms of the lease provided for such a commutation payment; and
  3. whether the payment was made on or after 6 April 1996.

 

The main circumstances which will be encountered, and their treatments, can be summarised as follows:

 

  • If the payment was made for the waiver or variation of one or more of the terms of the lease, the capital sum is treated as a premium, or additional premium. The instructions at CG71352-CG71371 deal with this type of case.

 

  • If the payment was made in commutation of the rent due under the lease and the terms of the lease provided for the possibility of such a commutation payment, the capital sum is treated as a premium, or additional premium. Again the instructions at CG71352-CG71371 deal with this type of case.

 

  • If the payment was made in commutation of the rent due under the lease and the terms of the lease did not provide for such a payment, the capital sum is chargeable under TCGA92/S22 (1).  In such a case, the date of disposal is determined by the normal rules, see CG14250+, and the gain or loss arising is calculated in the same way as that arising on any other part disposal. The example at CG71372 illustrates how this type of case is dealt with in practice.