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HMRC internal manual

Capital Gains Manual

Leases: merger: example: merger of leases: disposal pre-29/6/92

Mr J acquired a long lease in January 1985 for £30,000. In January 1988 he acquired the freehold reversion for £20,000 and the long lease was extinguished. In January 1991 he sold the freehold for £100,000.

The gain arising is calculated as follows:

  Disposal proceeds   100,000
Less Costs of lease 30,000  
  Cost of freehold 20,000 50,000
  unindexed gain   50,000
  Note: Indexation runs on all the expenditure from January 1985.    
less Indexation 50,000 x .428   21,400
    Chargeable gain   28,600