CG71190 - Short leases: disposal of lease wasting asset at 6/4/65
If a lease is disposed of which was owned by the person making the disposal at 6 April 1965 and it was a wasting asset at that time, you may have to consider the interaction of time-apportionment, see CG15570, with the wasting asset provisions.
Alternatively, you may need to consider the effect of an election under TCGA92/Sch 2/Para 17 for a valuation at 6 April 1965, see CG15525.
Neither of the above matters will need to be considered if:
- the lease is disposed of on or after 6 April 1988, and
- an election under TCGA92/S35 (5), see CG16760P, has been made.
The example which follows illustrates the effects of
- time-apportionment;
- an election for valuation at 6 April 1965
when the subject of the disposal is a lease which was a wasting asset at 6 April 1965.
Example
Miss J acquired a 75 year lease on 6 April 1955 paying a premium of £5,000. On 6 April 2012, she assigned the lease in return for a premium of £30,000.The Valuation Office Agency reported that:
- the value of the lease at 6 April 1965 was £18,000;
- the value of the lease at 31 March 1982 was £20,000.
The alternative calculations are as follows:
-
Rebasing calculation
Value of lease at 31 March 1982: £20,000
Amount of expenditure to be excluded
As per CG71141:
[ (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.
= [ (99.289 - 68.697) / 99.289 ] x £20,000
= £6,162
Allowable expenditure
Value of lease at 31 March 1982 £20,000
Less amount of expenditure to be excluded £6,162
= £13,838
Chargeable gain
Premium received £30,000
Less allowable expenditure £13,838
= £16,162
-
Historic cost calculation: time-apportionment
Original cost: £5,000
i. Exclusion from allowable expenditure:
= [ ( P(1) - P(3) ) / P(1) ] x 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.
= [ (100 - 68.697) / 100 ] x £5,000
= £1,565
Allowable expenditure
Original cost £5,000
Less amount of expenditure to be excluded £1,565
= £3,435
Chargeable gain
Premium received £30,000
Less allowable expenditure £3,435
= £26,565
Time-apportionment: part of gain arising after 6 April 1965:
=Chargable gain x (period of ownership after 6 April 1952 / Entire period of ownership)
= £26,565 x (47/57
= £21,904
3. Historic cost calculation: election for valuation at 6 April 1965
Value at 6 April 1965: £12,000
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.
= [ (100 - 68.697) / 100 ] x £12,000
= £3,756
Allowable expenditure
Value at 6 April 1965 £5,000
Less amount of expenditure to be excluded £3,756
= £8,244
Chargeable gain
Premium received £30,000
Less allowable expenditure £8,244
= £21,756