CGT on assignment of lease

CGT on assignment of lease

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 A client operates a small chain of restaurants as a sole trader.

One of the restaurants was loss-making and in June 2012 the leasehold interest was sold for £30,000 to an unconnected third party, who will operate an entirely different type of business from the premises.

When my client originally took on the property in question, there were 9 years left on a 15-year lease, for which he paid £20,000. A year later he spent a further £10,000 on leasehold improvements. This lease expired in December 2007 and, after lengthy negotiations with the landlord, a new 20-year lease was granted in June 2008, effective from December 2007. No premium was paid for this new lease, but legal fees of approx. £5,000 were incurred and, I believe, SDLT of approx. £6,000.

Am I correct in the following:

  • No part of the £20,000 spent on the original lease can be claimed against the proceeds of £30,000, since that original lease has entirely “wasted away”.
  • Similarly, no part of the improvements of £10,000 can be claimed against the proceeds of £30,000, since again this expenditure was incurred at a time when my client held the original expired lease.
  • The £5,000 and £6,000 incurred in connection with the new lease can be offset against the proceeds of £30,000, but will be only partly allowed in accordance with the table for depreciation of short leases.

I would be extremely grateful for any confirmation and/or guidance on the above.

Thank you. 

Replies (1)

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By George Attazder
23rd Oct 2012 12:20

My understanding...

... and your understanding are the same.

Thanks (1)