Taxation of Chargeable Gains Act 1992 Schedule 8 paragraph 4

Subleases out of short leases

Schedule 8 paragraph 4 sets out special rules for apportioning allowable expenditure when a landlord grants a sublease out of a short lease (one with 50 years or less to run) and receives a premium for doing so.

• When a sublease is granted out of a short lease for a premium, special apportionment rules replace the normal part disposal formula that would otherwise apply.
• If the premium received is at least equal to a full market premium (assuming the sublease rent equals the head lease rent), the expenditure apportioned to the disposal is the fraction of the original cost that would be written off over the sublease duration under the standard wasting asset depreciation curve.
• If the premium received is below a full market premium, the apportioned expenditure is reduced further by multiplying the wasting asset fraction by the ratio of the actual premium to the full market premium.
• Where the sublease covers only part of the land in the head lease, these rules apply only to the share of expenditure that corresponds to the proportion of land value included in the sublease; the balance remains attributed to the retained interest.