Leases

Question 1

What is a lease

sale of lease long and short (duration?)

Answer 1

A right to use asset, generally land or buildings for a specified time

freehold = owns

sale of lease also called assignment of lease

Long lease = >50 years to run at date of sale

Short lease = <50 years or less to run when taxpayer sells

Question 2

Calculating sale of short and long lease

Answer 2

Long lease = same as chargeable gain (proceeds - cost - indexation allowance

assigning a short lease :

Asset with < 50 years life is a wasting asset
start with sales proceeds less base cost of asset
cannot deduct full acq cost (as they depreciate over time, wouldn’t be fair to deduct full cost if asset had been used 20 years)

use depreciation tables to calculate allowable base cost

base cost = original acq cost x (S/P)
S= % for years of lease left after sale
P= % for years remaining at purchase

%’s found in Sch 8