Sales 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:

  • Sales of leases
  • Tax treatment for purchaser
  • Sale of a short lease
  • Sale of a long lease
  • VAT and lease assignments (and ‘reverse assignments’)

Assignment is the legal term for the sale of a lease. The assignment of a lease represents a disposal for capital gains purposes of an interest in property. There is no deemed rental income to calculate on the disposal because the assignment is not the grant of a new lease.

The chargeable gain on assignment of a 'long' lease, that is a lease with at least 50 years to run, is computed as a standard capital gains disposal. This is dealt with further below.

Where the lease has less than 50 years to run at the point at which it is assigned then it will be regarded as a wasting asset. This means that only a proportion of the original expenditure will be an allowable deduction against the disposal value. The amount of the original cost of a short-term lease allowable as a deduction on disposal reduces in accordance with a statutory formula given in TCGA 1992, Sch 8 to reflect the fact that the depreciation of the value of the initial cost of the list doesn't occur on a straight-line basis. This is considered further below.

For guidance on grants of leases see the Grants of leases guidance note.

Tax treatment for purchaser

If the person making the payment intends to occupy the property for the purposes of a trade, or to sublet it for the purposes of a property rental business, he will obtain no deduction against his profits for the lease assignment payment. He will have eligible capital gains base cost in the event of a future disposal of the property.

If the person making the payment is a property developer, who is acquiring the lease with a view to redeveloping the site, or selling it at a profit, the payment will form part of his cost of sales and will be deductible against his trading

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