Grants of leases

Produced by Tolley

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

  • Grants of leases
  • Grant of a long lease
  • Grant of a short lease out of a freehold or an existing long lease
  • Grant of a short sublease out of a short head lease
  • Length of the lease
  • A premium by any other name

Grants of leases

The creation or ‘grant’ of a lease out of an existing lease or freehold is a part disposal of the existing asset. The capital gains position of the person or company making the disposal (the landlord) and the tenant depends on the length of the lease; whether the lease is a long lease, with a term exceeding 50 years, or a short lease, with a term of 50 years or less. The permutations are summarised in the table below and explained in more detail in the rest of this note.

LandlordTenant
Grant of long lease out of freehold or long sublease out of long leasePart disposal of freehold interest or long lease. The chargeable gain is calculated using the normal part disposal formulaNo trading deduction for premium paid
Grant of short lease out of freehold or short sublease out of long leasePart disposal of freehold or long lease. The chargeable gain is calculated using a modified part disposal formula.
Part of the premium is treated as an income receipt. See the Premiums on leases guidance note
A trading deduction is available where the land subject to the sublease is used for trade. The deduction is based on the part of the premium treated as income of the landlord, divided by the number of days in the lease period. See the Premiums on leases guidance note
Grant of short sublease out of short leasePart disposal of interest in short lease. Special rules apply to calculate the chargeab

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