When you assign a lease that has 50 years or less left to run, it is a wasting asset and part of what you paid for it cannot be deducted. The amount written off is not straight line: it follows a statutory table in Schedule 8 paragraph 1 of the Taxation of Chargeable Gains Act 1992, which wastes cost slowly at first and quickly in the final years.

When does a lease become a wasting asset?

Schedule 8 paragraph 1(1) of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) says a lease of property is not a wasting asset until its remaining duration does not exceed 50 years. HMRC’s Capital Gains Manual at CG71140 describes a short lease as one with a remaining term of 50 years or less at the date of disposal, and CG71141 confirms the rules apply even if the lease was a long lease when it was acquired. Paragraph 1(5) adds that no cost is written off for any period before the lease became a wasting asset.

So a 99 year lease bought with 60 years left and assigned with 45 years left is caught, but only the wastage from the point it fell to 50 years counts, because the table percentage for 50 years or more is 100.

This page covers the assignment of an existing lease, where the tenant passes on their whole interest. HMRC’s Property Income Manual at PIM1204 explains that it is only an assignment if all of the tenant’s interest for the whole of the rest of the term is transferred. A transfer for even one day less is a sublease, and premiums for granting leases and subleases are partly taxed as income; see tax on lease premiums.

Why does a short lease not use straight line wasting?

Most wasting assets have their cost written off evenly over their life under section 46. CG71141 explains that this does not suit leases: the value of a short lease falls slowly at first and very rapidly in the last few years of the term. Paragraph 1(3) therefore replaces the uniform rate with a rate fixed by the statutory table, so that the cost written off tracks how lease values actually behave.

How does the formula work?

Paragraph 1(4) uses three percentages taken from the table:

P(1)
The percentage for the remaining duration of the lease at the start of your period of ownership.
P(2)
The percentage for the remaining duration when an item of enhancement expenditure is first reflected in the nature of the lease.
P(3)
The percentage for the remaining duration at the date of disposal.

CG71141 sets out the exclusions. From the acquisition cost under section 38(1)(a), you exclude (P(1) minus P(3)) divided by P(1). From each item of enhancement expenditure under section 38(1)(b), you exclude (P(2) minus P(3)) divided by P(2). Each item of improvement spending needs its own calculation because it was incurred at a different point in the lease.

Extract from the statutory table

Years remaining Percentage Years remaining Percentage
50 or more 100 20 72.770
45 98.059 15 61.617
40 95.457 10 46.695
35 91.981 5 26.722
30 87.330 2 11.629
25 81.100 1 5.983

The full table in Schedule 8 paragraph 1 gives a figure for every whole year from 0 to 50. The shape is the point: a lease loses under 13% of its table value between 50 and 30 years remaining, but almost 47% in its last 10 years.

What if the lease does not run for an exact number of years?

The note to the table says you take the percentage for the whole number of years, then add one twelfth of the difference between that and the percentage for the next higher year for each odd month, counting an odd 14 days or more as a month. For 20 years and 5 months remaining, that is 72.770 plus five twelfths of (74.635 minus 72.770), which gives 73.547.

Worked example: assigning a business lease

Illustration only. Priya bought the assignment of a shop lease with exactly 30 years left for £60,000. Five years later, with 25 years left, she spent £10,000 on improvements that are still reflected in the lease. She assigns the lease with exactly 20 years left for £75,000, net of costs, and has claimed no income tax deduction for the premium.

Step Working Amount
Acquisition cost £60,000
Excluded from acquisition cost £60,000 x (87.330 minus 72.770) / 87.330 £10,003
Allowable acquisition cost £49,997
Enhancement expenditure £10,000
Excluded from enhancement £10,000 x (81.100 minus 72.770) / 81.100 £1,027
Allowable enhancement £8,973
Gain £75,000 minus £49,997 minus £8,973 £16,030

Without the wasting rules the gain would have been £5,000. The difference reflects the £11,030 of cost treated as used up while Priya held the lease. HMRC’s own worked examples at CG71141 follow the same method, with a 25 year lease assigned after 8 years.

How is the length of a lease worked out?

The table only works if the duration is right, and Schedule 8 paragraph 8 can make it shorter or longer than the stated term:

  • If the landlord can end the lease by notice, it is treated as ending at the earliest date the landlord could do so.
  • If the terms or other circumstances make it unlikely the lease will continue beyond an earlier date, it is treated as ending then. A sharp rent increase at a date when the tenant can break is the example given in the statute.
  • If the tenant can extend the lease by notice, it is treated as running for as long as the tenant could extend it, subject to any landlord’s right to end it.

Paragraph 8(6) says duration is decided using the facts known or ascertainable when the lease was acquired or created, not with hindsight.

What special cases change the answer?

  • Lease subject to a sublease at less than full rent. Under paragraph 1(2) and CG71170, if you acquire a lease already sublet below a rack rent and its expected value when the sublease ends exceeds your cost, the lease does not start to waste until the sublease ends.
  • Capital allowances. CG71180 says expenditure that qualified for capital allowances is not wasted under paragraph 1(4). See capital allowances explained.
  • Relief already given for the premium. A trader who paid a premium for a short lease may have had income tax or corporation tax relief under section 61 of the Income Tax (Trading and Other Income) Act 2005 or section 63 of the Corporation Tax Act 2009. CG71200 says the allowable cost is reduced by the relief actually given, and that reduction is made before the table is applied.
  • Your own home. If the leasehold flat or house was your only or main residence, private residence relief may exempt the gain whatever the wasting computation shows; see private residence relief.

What are the common mistakes?

  • Using straight line wasting under section 46, which the statute disapplies for leases.
  • Reading the table using the original term of the lease instead of the years remaining at acquisition and at disposal.
  • Applying P(1) to improvement costs instead of P(2) for the date each item was reflected in the lease.
  • Ignoring break clauses and tenant options to extend when fixing the duration.
  • Treating a transfer for slightly less than the full remaining term as an assignment, when it is a sublease with different rules.
  • Forgetting to deduct premium relief already given against trading profits before applying the table.

Leaseholders who extend their lease may lift it out of the short lease rules altogether; see lease extension costs. For the general computation, see how capital gains tax is calculated, and for other wasting assets see chattels and wasting assets.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.