Grants of leases

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Grants of leases
  • The grant
  • Length of the lease
  • Sums treated as premiums
  • VAT

The grant

Where a lease for a term exceeding 50 years (a long lease, which is not 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 is granted. The part disposal provisions apply. These provisions do not apply where the lease is granted out of a short lease (ie not exceeding 50 years) 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:


  • 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 does not 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. A depreciation table is available for lease calculations.

TCGA 1992, Sch 8, para 1

See Simon’s Taxes C2.1215–C2.1219 (subscription sensitive).

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, for example the lease might have

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