Miscellaneous Provisions: Linked leases: Single scheme: Example
On 1 March 2005 a ten-year lease is granted for a house at a rent of £7,000 per annum. On 1 April 2005 following further negotiations, a second lease is granted for the neighbouring garage for a rent of £500 per annum. Both leases end on 28 February 2015.
- Calculate the tax that would be chargeable on the house if the linked transactions were a single transaction:
- Calculate NPV of house (NPV1): £58,216
- Aggregate with NPV of garage: £4,127 to give total NPV (TNPV) £62,343
- Total tax that would be chargeable on house + £62,343 less threshold applicable as at 1 March 2005:
£2,343 @ 1% = £23.43
- Calculate element of tax relating to house by applying fraction N P V 1
- Calculate the tax that would be chargeable on the garage if the linked transactions were a single transaction:
T a x £ 2 3 . 4 3 x 5 8 2 1 6 = £21.86.
- Deduct any tax already paid (nil) to arrive at tax due.
- For notification purposes, effective date is 1 April 2005.
- Calculate NPV of garage (NPV2): £4,127
- Aggregate with NPV of house: £58,216 to give total NPV (TNPV) £62,343
- Total tax that would be chargeable on garage: £62,343 less threshold applicable as at 1 April 2005:
£NIL @ 1% = £NIL
- Tax relating to garage itself must therefore be nil.
Taken separately, the NPV of these leases would each have been below the 0% threshold in force at the time of their respective grant. However the provisions of FA03/SCH5/PARA2 demand that they are aggregated for the purposes of applying the relevant thresholds fairly and proportionately, so that a charge does arise when they are considered together.