Commentary

C2.1217 Grant of a lease out of a wasting lease

Capital gains tax
Capital gains tax | Commentary

C2.1217 Grant of a lease out of a wasting lease

Capital gains tax | Commentary

C2.1217 Grant of a lease out of a wasting lease

Where a lease is granted out of a lease which is a wasting asset, the part disposal formula1 does not apply to determine the allowable expenditure which may be deducted in the computation of chargeable gains2.

Instead, only that part of the expenditure which wastes away over the period of the sublease may be deducted from the consideration3 for the sublease4. These provisions5 are on the curved line basis for land6 and on the straight line basis for other assets7.

Example 1

X Ltd acquired a 25 year licence over the UK copyright of the works of a US author for £100,000 on 31 March 2013. It also pays a royalty to the copyright owner of 2% of net sales revenues of the works concerned. On 30 November 2020, X Ltd sub-licensed the copyright to Y Ltd, an unrelated company, for a term of 10 years, for £500,000 and a royalty of 2% of net sales.

££
Disposal consideration500,000
Deduct: Allowable

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