Chapter 14 - Grant of Lease

Question 1

Introduction

Answer 1

Grant of a lease is the creation of a new asset. Owner of the freehold grants a lease to a tenant who can then occupy the property. The tenant will pay a premium on the lease and is treated as a capital sum ie subject to CGT

Question 2

Basics

Answer 2

We calculate the gain by treating the grant of the lease as part disposal of the freehold. There are different rules for short and long leases

Question 3

Granting a Long Lease

Answer 3

Allowable cost = A/(A+B) x acquisition cost
A = gross amount of premium paid
B = value of the remainder (aka reversionary interest)

Question 4

Granting a Short Lease

Answer 4

If a short lease is granted, part of the premium is charged to IT and the remainder is charged to CGT:
Capital element = 2% x (N - 1) x P
P = premium received
N = number of years of the lease