A lease is essentially a right to use an asset for a specified period of time. A freehold and a lease are two separate assets. If an individual owns a property as a freeholder, it means the individual owns the property outright. A lease is a piece of paper giving a lessee a right to occupy somebody else’s property. The legal term for the sale of a lease is the assignment of a lease. The capital sum received is wholly capital gains tax proceeds. The calculation depends on if the lease is a long lease (more than 50 years) or a short lease (less than 50 years).
Assigning a short lease – an asset with a useful life of less than 50 years is called a wasting asset, special rules apply to calculate the gains. The CGT base cost is the original acquisition cost of the lease, multiplied by the fraction:
S/P x original cost (S is % for years of the lease remaining at the date of sale, P is the % for years of the lease remaining at the date of purchase). These percentages can be found in the tax tables.
Further points on lease depreciation percentages – the percentage tables are given in whole years only. If it is not a whole year, apportionment is required on a monthly basis.