If you dispose of land or any interest in land, you may make a chargeable gain or an allowable loss. The calculation of the gain or loss arising on a disposal is in many cases the same as for other assets, but there are some special rules which apply only to land.

Leases

This is only a summary of the main provisions.

Grant of lease

The grant of a lease, whether out of a freehold or leasehold interest, is a part disposal. In certain circumstances, you may also be chargeable to Income Tax. Grants of leases fall into 3 categories:

• the grant of a long lease out of a freehold or long leasehold interest
• the grant of a short lease out of a freehold or long leasehold interest
• the grant of a short lease out of a short leasehold interest

The tax treatment is different for each category. A long lease is one with more than 50 years duration remaining and a short lease has 50 years or less remaining. The duration of a lease for Capital Gains Tax purposes will normally be the time remaining until the expiry of the current term of the lease, but can also be affected by any provision in the lease allowing the landlord or the tenant to give notice to terminate the lease, or by a provision allowing the tenant to extend it.

Grant of a long lease out of a freehold or long leasehold interest

To calculate the gain arising on the part disposal, any allowable expenditure (apart from the costs of disposal) is apportioned between the freehold reversion or superior leasehold interest retained and the lease granted.

This is done by applying the fraction A/(A + B) to the allowable expenditure, as for part disposals of other assets, but with one difference.

For the granting of a lease:

• A is the premium or consideration received for the grant of the lease
• B is the value of the interest retained which includes the value of the right to receive the rent due under the lease

Grant of a short lease out of a freehold or long leasehold interest

Part of any premium you may receive for the grant of a short lease is chargeable to Income Tax. The calculation is made as for the grant of a long lease (see above), except that the amount chargeable to Income Tax is:

• left out of the consideration brought into the calculation of the gain or loss arising
• left out of the numerator A in the A/(A + B) fraction used to apportion the allowable cost between the freehold or superior leasehold interest retained and the lease granted, but
• is included in A in the denominator of the A/(A + B) fraction

Grant of a short lease out of a short leasehold interest

Part of any premium you may receive for the grant of a short lease is chargeable to Income Tax. In calculating the amount chargeable to Capital Gains Tax:

• the full amount of any premium payable for the granting of the lease is brought into the calculation of the gain or loss as the consideration received, but a deduction of the amount chargeable to Income Tax is made later in the calculation
• special rules apply for calculating the allowable expenditure to be deducted from the consideration in calculating the gain or loss
• if a capital loss arises, it may be restricted in some circumstances

HMRC will let you have the details necessary to calculate your chargeable gain or allowable loss.

Other sums received after you grant a lease

During the existence of a lease you may receive a capital sum in exchange for the surrender of the lease, or instead of rent, or for the variation or waiver of some of the terms of the lease. Such a capital sum is chargeable to Capital Gains Tax.

Assignment or surrender of a lease

If you’ve assigned or surrendered a lease, you’ve made a complete disposal of that leasehold interest. The amount of your gain or loss depends on whether the lease was a long lease or a short lease at the date of disposal.

A long lease is one with more than 50 years duration remaining, and a short lease has 50 years or less remaining. The duration of a lease for Capital Gains Tax purposes will normally be the time remaining until the expiry of the current term of the lease, but can also be affected by any provision in the lease allowing the landlord or the tenant to give notice to terminate the lease, or by a provision allowing the tenant to extend it.

For a long lease, any allowable expenditure is allowed in calculating the gain or loss in the normal way.

For a short lease, the allowable expenditure is restricted and special rules apply.