Grants of leases

By Tolley
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The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Grants of leases
  • The grant
  • Length of the lease
  • A premium by any other name
  • VAT

The grant

Where a lease for a term exceeding 50 years (a long lease, which isn't a wasting asset) is granted, in return for a premium, out of a freehold interest or another long lease, it is treated as a part disposal of the larger interest out of which it's granted. The part disposal provisions apply. (Those provisions don't apply where the lease is granted out of a short lease which is a wasting asset.)

The property which remains undisposed of includes a right to any rent or other payments (other than the premium) payable under the lease. The value of this residual asset is included in the denominator of the fraction used in the part disposal computation. This fraction is:

Where:

  • A is the consideration for the disposal; and
  • B is the market value of the property undisposed of

Where a lease is granted out of a lease which is a wasting asset, the part disposal formula doesn't apply to determine the allowable expenditure which may be deducted in the computation of chargeable gains.

Only that part of the expenditure which wastes away over the period of the sublease may be deducted from the consideration for the sublease. These provisions are on the curved line basis for land and on the straight line basis for other assets.

TCGA 1992, Sch 8, para 4
Length of the lease

When granting leases, the terms of the lease might not be so straightforward as to be clear on the length of the lease, eg the lease might have a break clause. There are various rules to help determine what the length of the lease should be regarded as, for the purpose of the above

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