Taxes Consolidation Act 1997 Section 566

Leases

Section 566 provides that Schedule 14 applies for the purposes of the Capital Gains Tax Acts, setting out detailed rules for the capital gains tax treatment of leases of land, including how allowable expenditure on leases is written down over time.

• A lease of land is treated as a wasting asset only when it has 50 years or less to run, and its cost is written down not on a straight-line basis but using a curved table in Schedule 14 that falls more steeply as the lease nears expiry
• The grant of a lease at a premium is a part disposal of the freehold or head lease, and the part disposal formula takes into account the premium received, the capital value of the right to rent, and the value of the reversion
• Where a sub-lease is granted out of a lease that is itself a wasting asset (50 years or less to run), special rules apply to determine what proportion of the original cost of the head lease may be deducted from the premium received
• To avoid double taxation, premiums that have already been charged to income tax under Schedule D are deducted in the capital gains tax computation, with different rules depending on whether the lease was granted out of a freehold, a long lease, or a short lease