»Ê¹ÚÌåÓýapp

TCGA92/Sch 8/Para 4 (3)

Where:

• a short lease is granted out of a short lease, and
• the sub-lease covers only part of the land covered by the original lease

the amount of the allowable expenditure on the grant of the sub-lease is reduced.

»Ê¹ÚÌåÓýappre are a number of stages in the calculation:

i) »Ê¹ÚÌåÓýapp amount of the premium chargeable as property income must be calculated, see CG70900P.

ii) »Ê¹ÚÌåÓýapp part of the total allowable expenditure attributable to the part disposed of is calculated on A / (A+B) lines, see CG12730P.

iii) »Ê¹ÚÌåÓýapp part of the expenditure which will waste away over the term of the sub-lease is calculated, see CG71001.

iv) Any restriction due if the actual premium is less than the ‘notional full premium� is calculated, see CG71007.

v) All the above factors are combined to calculate the allowable expenditure.

vi) »Ê¹ÚÌåÓýapp gain arising can then be computed.

Any valuations which are required should be obtained from the Valuation Office Agency, see CG74000C.

Example

Mr P acquired a 55 year lease over a property in return for a premium of £300,000. »Ê¹ÚÌåÓýapp annual rent payable was £50,000. Eight years later he sub-let part of the property on a 21 year lease in return for a premium of £100,000. »Ê¹ÚÌåÓýapp annual rent payable under the sub-lease was £20,000.

»Ê¹ÚÌåÓýapp Valuation Office Agency stated that:

• the value of the original lease at the date the property was sub-let was £500,000;
• the amount included in the £500,000 which related to the part sub-let was £150,000;
• the notional full premium for the part sub-let would be £120,000.

Amount chargeable as property income:

P x [ (50 - Y) / 50 ]

P is the amount of the premium

Y is the number of complete years (other than the first) in the term of the lease

= £100,000 x [ (50 - 20) / 50 ]

= £100,000 x 0.6

= £60,000

Part of total allowable expenditure attributable to the part disposed:

Total allowable expenditure x A / (A+B)

A is the disposal consideration

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

= £300,000 x £150,000 / (£150,000 + £500,000)

= £90,000

Part which will waste away over the term of the sub-lease:

[ (C - D) / P(1) ]

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;

C is the percentage derived from the table in TCGA92/Sch 8/Para 1 (6) for the remaining term of the lease when the sub-lease was granted;

D is the percentage derived from the table in TCGA92/Sch 8/Para 1 (6) for the remaining term of the lease when the sub-lease expires.

»Ê¹ÚÌåÓýapp percentages which are required from the table in TCGA92/Sch 8/Para 1, see CG71141, are:

P (1) - Percentage for 55 years: 100

C - Percentage for 47 years: 98.902

D - Percentage for 26 years: 82.496

[ (C - D) / P(1) ]

= [ (98.902 - 82.496) / 100 ]

= 0.16406

Restriction where sub-lease at higher rent;

Actual premium / Notional full premium

= (£100,000 / £120,000)

= 0.8333

Allowable expenditure on grant of sub-lease:

= £90,000 x 0.16406 x 0.8333

= £12,305

Gain accruing on grant of sub-lease:

Premium	£100,000
Less allowable expenditure on grant of sub-lease	£12,305
Less amount chargeable as property income	£60,000
Ìý	£27,695