Lease

Question 1

Explain the treatments of the assignment of a long term lease

Answer 1

Assignment - All charged to CGT

Treated as a disposal for CGT purposes
Buy:
Sell:
Expire:

Proceeds: Premium
Cost: Orginal cost
Gain

W1 Cost: Orginal cost * a/b
but a and b = 100%

Question 2

Explain the treatment of the assignment of a short term lease

Answer 2

Assignment - All charged to CGT

Treated as a disposal for CGT purposes

Buy:
Sell:
Expire:

Proceeds:
Cost W1
Gain

Cost W1 = orginal cost * number of years left on lease/ total number of years of the lease

Question 3

What is the assingment of a lease

Answer 3

Selling the reamining part of the lease to someone else. Same asset sold

Question 4

Expalin the granting of a longer term lease from freehold

Answer 4

Income tax
No charge to income tax as a long lease

CGT
Proceeds
Cost W1
Gain

Cost W1 = orginal cost * A/ A+B
A = premium
B = reversion value

Question 5

Explain the grant of a short term lease from a freehold

Answer 5

Income tax
Premium * 50-Y /50

CGT
Proceeds
Cost W1
Charge to IT

Cost W1 = orgianl cost * a /A+B
a = premium charge to CGT
A = premium
B = reversion value

Question 6

Explain the grant of a short term lease from short term lease

Answer 6

Income tax
Premium received * 50 - Y /50

Minus relief for premium paid to lessor

Premium paid * 50 - Y /50
divide by the number of years of HL * number of years of SL

CGT
Proceeds
Cost W1
Charge to IT

Cost W1 = orginal cost * a-b/c

Where a, b and see are all in realtion to HL
a = at grant of sublease
b = at expiration
c = total terms of HL

Remeber to use % tables

Question 7

What is the granting of a lease.

Answer 7

Creating a new asset from an old asset