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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Leases: merger: disposal pre-29/6/92: original lease held at 6/4/65

On 6 April 1957, Miss Y acquired a 55 year lease of a property for £8,000 (including expenses of acquisition). On 6 April 1973, she acquired the freehold for £20,000 (including expenses). On 6 April 1987 she sold the property for £80,000.

The Valuation Office Agency reported the following values;

6 April 1965 (value of remaining term of original lease): £15,000

31 March 1982 (value of freehold): £55,000.

Miss Y elected for 31 March 1982 value for indexation allowance purposes.

1) Time-apportionment

If time-apportionment applies, the chargeable gain accruing to Miss Y is calculated as follows.

i) Allowable expenditure

Cost of lease: £8,000

At the date that the freehold was acquired, the lease had 39 years to run, so the cost of the lease must be `wasted’, see CG71141 - CG71141.

Amount to be deducted:

£8,000 x       100 - 94.842   = £412

                                   100

 

  Allowable cost of lease £7,588
     
Add: cost of freehold £20,000
  Total allowable expenditure £27,588

ii) Computation of gain

      £
       
  Sale price of property   80,000
    £  
Less expenditure 27,588  
  indexation £55,000 x 0.281 15,455 43,043
  Gain before time-apportionment   36,957

 

iii) Time-apportionment

Applying the time-apportionment formula:

22 years (6 April 1965 to 6 April 1987) x £36,957 = £27,101

30 years (6 April 1957 to 6 April 1987)

2) Election for valuation at 6 April 1965, see CG15525+.

If Miss Y elected for the gain to be calculated by reference to the 6 April 1965 value of the asset, the chargeable gain would be calculated as follows.

i) Allowable expenditure

Value of lease at 6 April 1965: £15,000

As before, the cost of the lease must be `wasted’ in accordance with TCGA92/SCH8/PARA1, but the `period of ownership’ begins on 6 April 1965, see CG71160.
 

Amount to be deducted:

£15,000 x 98.902 - 94.842   = £615

                                        98.902

Allowable cost of lease £14,385
   
Add: cost of freehold £20,000
Total allowable expenditure £34,385

ii) Computation of gain

    £
     
  Sale price of property 80,000
Less allowable expenditure 34,385
  Unindexed gain 45,615
less indexation 55,000 x 0.281 15,455
    30,160