12:00 PM, 16th May 2022, About 3 months ago 3
Hi everyone, In 1999 we purchased a one bedroomed leasehold flat. Several years later we extended the lease at some considerable cost.
We recently sold the flat and now have to calculate the CGT owing.
My question is the cost of extending the lease claimable as an allowable expense against CGT?
I can’t find where it is clear on this matter.
From HMRC >> Click here
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:
On 30 June 1988, Mr Jones bought the freehold of a property for £150,000. On 30 June 2019, he granted a 75-year lease of the property for a premium of £200,000. Rent of £5,000 a year was due under the lease. Mr Jones incurred legal fees of £3,000 on the grant of the lease.
The value of the interest retained is the freehold subject to the lease and at 30 June 2019 this was valued at £100,000.
|Mr Jones’ allowable expenditure is:|
|£150,000 (cost of property) × A ÷ (A + B)|
|£150,000 × £200,000 ÷ (£200,000 + £100,000) =||£100,000|
|The gain accruing to Mr Jones is then calculated as follows:|
|Minus apportioned cost (as above)||£100,000|