SolvedCG71200 | Short leases: disposal: relief given under ITTOIA05/S61 or CTA09/S63
From HM Revenue & Customs · Capital Gains Manual
If a premium is paid for the acquisition of a short lease, and the person acquiring the lease then uses the property for the purposes of his or her trade, profession or vocation, relief under ITTOIA05/S61 or CTA09/S63 may be available, see BIM46250 onwards.
On a subsequent disposal of the lease, the allowable expenditure is reduced by the amount of the relief actually given to that person under ITTOIA05/S61 or CTA09/S63. This reduction is made before the reduction required by TCGA92/Sch 8/Para 1 (4).
How this rule works in practice is illustrated by the following example.
Example
Mr W acquired a 31 year lease of a property on 31 January 2014. He paid a premium of £20,000. On 31 January 2020, he disposed of the lease for £25,000. Between January 2014 and January 2020, he used the property for the purposes of his trade of motor mechanic. He was given relief under ITTOIA05/S61 of £1,550.
Mr W’s gain on the disposal of the lease is calculated as follows:
Allowable expenditure
| Cost of lease | £20,000 |
|---|---|
| Less relief given under ITTOIA05/S61 | £1,550 |
| £18,450 |
Amount excluded under TCGA92/Sch 8/Para 1 (4):
[ ( P(1) - P(3) ) / P(1) ] x expenditure otherwise allowable under S38(1)(a)
P (1) is the percentage derived from the table in TCGA92/Sch 8/Para 1 (6) for the duration of the lease at the beginning of the period of ownership;
P (3) is the percentage derived from the table in TCGA92/Sch 8/Para 1 (6) for the duration of the lease at the date of disposal.
= [ (88.371-81.100) / 88.371 ] x £18,450
= £1,518
Total allowable expenditure:
| Allowable expenditure | £18,450 |
|---|---|
| Less Amount excluded under Sch 8 Para 1 (4) | £1,518 |
| £16,932 |
Chargeable gain
| Disposal proceeds | £25,000 |
|---|---|
| Less allowable expenditure | £16,932 |
| £8,068 |