Hi all,
My client owns a freehold property which is held in his own name. The free hold is used for the commercial activities of his company.
He has decided to grant a 15 year lease for a premium of £215,000 with an annual rent of £25,000
He bought the freehold in 1980 for around £50k. So, for the time being I have assumed a march 82 rebase value of £52k.
He has however spent an additional £215k in capital improvements.
As the leasehold is a grant then this is treated as a part disposal for CGT purposes and because it is a short lease then an element of the premium will be charged to income tax as schedule A.
For the sake of waffle I have worked out the element chargeable to income tax & the element deemed as a capital disposal for my CGT comp.
My query is with regard to the base cost adjustment calculation to find the adjusted part disposed base cost.
the formula is - base cost x disposal/disposal + reversionary int + right to receive the rent .
In my example the base cost I have used for the fraction adjustment is 52k 31/03/82 + 215k of capital improvements.
So am I correct to apply £267k x fraction adjustment(as above) in order to find my adjusted base cost figure for my part disposal cgt comp?
Logic surely suggests that the capital improvement element would also be plumbed into this calculation in addition to the initial freehold purchase?
Also, I am happy that if my client had sold the free hold instead then this would attract entr relief as it is used by his company.
So with regard to this part disposal comp I assume entr relief would equally apply?
Or could it be denied as the whole asset is not being disposed of?
thoughts much appreciated
simpsonite
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