»Ê¹ÚÌåÓýapp

If a freehold or leasehold interest in land is disposed of, on terms which include the provision that the purchaser will grant a lease of the whole or part of the land in question to the vendor, that should be treated as a part-disposal by the vendor. It should not be treated as two separate disposals, one by the vendor and one by the purchaser, see Sargaison v Roberts 45TC612.

»Ê¹ÚÌåÓýapp value of the interest which is retained by the vendor is the market value of the lease granted by the purchaser.

It is possible that a charge arises under ITTOIA05/S285 or CTA09/S225, see PIM1226. Note a charge does not arise if the lease is granted and begins to run within one month of the sale.

»Ê¹ÚÌåÓýapp way in which gains are computed in such cases is illustrated by the examples below. Note for companies, indexation may also be due.

Example 1 - Sale of Freehold and Leaseback

On 30 June 2015, Mr M bought the freehold of a property for £600,000. On 30 June 2020, he sold the property for £800,000 plus the grant of a 25-year lease at a rent of £100,000 a year.

»Ê¹ÚÌåÓýapp Valuation Office Agency reported that the market value of the lease was £300,000.

»Ê¹ÚÌåÓýapp gain accruing to Mr M is calculated as follows:

Disposal proceeds

£800,000

Allowable expenditure

Acquisition Cost x A/(A+B)

A is the disposal consideration

B is the value retained at the time of the part disposal

= £600,000 x 800,000/(800,000+300,000)

= £436,364

Chargeable gain

Disposal proceeds £800,000

Less allowable expenditure £436,364

£363,636

Example 2 - Sale of short lease and leaseback

On 30 June 2012, Mrs H paid a premium of £200,000 to acquire a 55-year lease on a property. »Ê¹ÚÌåÓýapp rent payable was £80,000 a year. On 30 June 2020, she assigned the lease in return for a payment of £250,000 plus the grant of a 25-year sub-lease of the property at a rent of £80,000 a year.

»Ê¹ÚÌåÓýapp Valuation Office Agency reported that the market value of the sub-lease was £100,000.

»Ê¹ÚÌåÓýapp gain accruing to Mrs H is calculated as follows.

Disposal proceeds

£250,000

Actual expenditure

= £200,000

Since the lease had less than 50 years to run at the date of the part disposal, the expenditure needs to be ‘wasted� in accordance with TCGA92/Sch 8/Para 1, see CG71144.

Amount of expenditure to be excluded (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.

Amount of expenditure to be excluded:

= (100-98.902)/100 x £200,000

= £2,196

Allowable expenditure

Total allowable expenditure x A/(A+B)

A is the disposal consideration

B is the value retained at the time of the part disposal

= (£200,000 - £2,196) x 250,000/(250,000+100,000)

= £141,289

Chargeable gain

Disposal proceeds £250,000

Less allowable expenditure £141,289

£108,711