IRREGULARITIES IN THE CAPITAL TAXATION OF ‘SHORT’ LEASEHOLDS

Abstract

Capital Gains Tax (or an equivalent charge to Corporation Tax) applies to any profit derived from the disposal of any interest in property. Any gain accruing on disposal (or other chargeable event) is computed under specific and detailed rules provided for in taxation legislation. Because of the variety of circumstances which can arise on the disposal of an asset (transactions otherwise than at arm's length, certain deemed disposals, disposals involving the receipt of premia etc), special problems can be encountered in assessing the amount of tax due. Such a problem is the assessment of capital gain for taxation purposes on assets whose lives have limited duration. These are known as wasting assets and include leasehold interests in property which are terminable interests with (usually) zero residual value. This paper examines the problems connected with the valuation of short leaseholds (ie, leases with less than a 50‐year term to run) and demonstrates that the specific and detailed rules for the valuation of these interests for the purpose of assessing capital taxation are at best inadequate and potentially inequitable.

Citation

MACLEARY, A. (1988), "IRREGULARITIES IN THE CAPITAL TAXATION OF ‘SHORT’ LEASEHOLDS", Journal of Valuation, Vol. 6 No. 4, pp. 351-364. https://doi.org/10.1108/eb008031