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HMRC internal manual

Capital Gains Manual

Leases: merger of leases: disposal 29/6/92+: ESC D42


The facts are similar to those in the example in CG71420, but with a later date of disposal.

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 1993 he sold the freehold for £100,000.

The gain arising is calculated as follows


  Disposal proceeds   £100,000
Less Cost of lease £30,000  
  Cost of freehold £20,000 (£50,000)
  Unindexed gain    £50,000
Less Indexation:    
  On cost of lease £30,000 x 0.512 £15,360  
  On cost of freehold £20,000 x 0.335   £6,700 (£22,060)
  Chargeable gain    £27,940