Lease Extension – Tax Implications?

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.

Many thanks

Malcolm

Editor’s Note:

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:

• 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

Example 1

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.