Disposals of leases

By Tolley

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

  • Disposals of leases
  • VAT and lease assignments (and ‘reverse assignments’)

Upon assignment (ie disposal), the party who has occupied property under a lease will have a capital gains disposal of his interest in the property. There is no deemed rental income to calculate on the disposal because the assignment is not the grant of a new lease. For details of deemed rental income, see the Lease premiums guidance note.

Just as the grant of a lease with more than 50 years to run is subject to CGT under the part disposal rules (see the Grants of leases guidance note), the assignment of a lease with more than 50 years to run is also subject to CGT under the normal CGT rules. However, if the lease has 50 years or less 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 does not occur on a straight-line basis. A depreciation table is available in TCGA 1992, Sch 8, para 1 for the calculations.

If the person making the payment intends to occupy the property for the purposes of a trade,

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