CG70950 - Leases: Grant of long lease out of a freehold or long lease
The grant of a long lease, that is a lease with a term of over 50 years, out of a freehold or long lease is the simplest scenario involving the grant of a lease.
The normal rules apply to the computation of the gain. The whole of any premium received is brought into account as consideration for the grant of the lease and the part disposal formula in TCGA92/S42, see CG12730P, applies.
However, in these circumstances, when applying the part disposal formula A / (A+B):
A is the premium received;
B is the value of the remaining interest (that is the interest in the land retained by the landlord) which will include the value of the right to receive the rent due under the lease.
Example
On 30 June 2017, Mr J bought the freehold of a property for 拢1,500,000.
On 30 June 2020, he granted a 75 year lease of the property to Mr L. A premium of 拢1,000,000 was paid by Mr L and rent of 拢50,000 per year was due under the lease. Mr J incurred legal fees of 拢3,000 on the grant of the lease.
The Valuation Office Agency reported that, at 30 June 2020, the value of the freehold reversion was 拢1,100,000.
Allowable expenditure
Acquisition Cost x [ A / (A + B) ]
= 拢1,500,000 x [ 拢1,000,000 / (拢1,000,000 + 拢1,100,000) ]
= 拢714,286
Chargeable gain
| Premium received | 拢1,000,000 |
|---|---|
| Less Allowable expenditure | 拢714,286 |
| Less Legal fees | 拢3,000 |
| 听 | 拢282,714 |