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Capital Gains Manual

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

ESC/D42

Mr M acquired a lease with forty years to run on 31 March 1975 for £10,000. The marketvalue on 31 March 1982 was £50,000. On 31 March 1987 he acquired the freehold for£60,000. On 1 January 1993 he sold the freehold for £200,000. An election underTCGA92/S35 (5) was made by Mr M.

The gain arising is calculated as follows.
 

i) Allowable expenditure

Value of lease at 31 March 1982: £50,000

At the date that the freehold was acquired, the lease had 28 years to run, so the cost ofthe lease must be `wasted’, see CG71141-CG71142. The `period of ownership’ begins on 31March 1982, see CG71160.

Amount to be deducted:

£50,000 x 90.284 - 85.053 = £2,894

                                           90.284

  £
   
Allowable cost of lease: 47,106
Add: cost of freehold: 60,000
Total allowable expenditure: 107,106

 

ii) Computation of gain

 

      £
       
  Sale price of property   200,000
Less allowable expenditure   107,106
unindexed gain 92,894    
Less indexation allowance:    
  on cost of lease 47,106 x 0.736 34,670  
  on cost of freehold 60,000 x 0.371 22,260 56,930
Chargeable gain 35,964