Taxation of Chargeable Gains Act 1992 Schedule 8 paragraphs 5–7A

Exclusion of premiums taxed as receipts of a property business etc.

Schedule 8 paragraphs 5 to 7A prevent double taxation by ensuring that lease premiums already taxed as property income are not also fully taxed as chargeable gains, with specific rules depending on the type of lease and disposal involved.

• Where a lease premium has been taxed as property business income, the amount so taxed is excluded from the capital gains computation to avoid double counting — except where it forms part of the denominator in a part disposal apportionment.
• For short leases (50 years or less), whether involving subleases or sales with rights to reconveyance or leaseback, the income-taxed amount is deducted from any chargeable gain rather than excluded from consideration — but the deduction cannot create or increase a loss.
• Where a tenant is required to carry out improvements to the property as a condition of the lease, the resulting increase in value to the landlord's reversion is treated as an additional premium for property income purposes, and the landlord is treated as having incurred allowable expenditure of that amount for capital gains purposes.
• These rules apply equally to premiums received as receipts of an overseas property business, and the definition of "premium" extends to sums paid in lieu of rent, for lease surrenders, and for variations or waivers of lease terms.