My client has a 25 year lease at their current premises. The landlord has told them that they will have to vacate the premises shortly and they have therefore agreed a price for the early surrender of the lease, approx £750,000. How will this be taxed on my client? Also, I believe that this transaction is outside of VAT but would be grateful for confirmation.
Many thanks
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The surrender of a lease by the tenant is a supply by the tenant to the landlord and is exempt from VAT, unless the tenant has opted to tax the property concerned. In which case the surrender will be subject to the Standard rate of VAT.
Assuming it's the surrender of a lease with less than 50 years to run, it is a disposal of a wasting asset.
So the sale proceeds are £750,000, the cost would be calculated using the wasting asset tables using the percentage for lease remaining when purchased and when sold - to calculate the allowable amount of the inital cost.
Then, depending whether it's a company that is surrendering the lease or a sole trader / partnership you work out the capital gain (and tax) in the usual manner.