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My client, who is a 40% taxpayer with available capital losses, owns the freehold of several industrial properties. These are let on short-term leases to unquoted trading companies and the tenants have an obligation to make good any dilapidations. One property cost about £400,000 eight years ago and the lease on it has just come to an end. The tenant has agreed to pay my client a sum of £40,000 by way of compensation instead of making good the repair dilapidations on the property.
My client who is a 40% taxpayer with available capital losses owns the freehold of several industrial properties. These are let on short-term leases to unquoted trading companies and the tenants have an obligation to make good any dilapidations. One property cost about £400 000 eight years ago and the lease on it has just come to an end. The tenant has agreed to pay my client a sum of £40 000 by way of compensation instead of making good the repair dilapidations on the property. Following the tenant's exit my client has spent about £35 000 on repairs and he has now re-let the property.
My question is whether the dilapidation receipt is taxable as income or capital?
If capital is the taxable amount the full £40 000? Presumably taper relief is not available but can the capital losses be utilised? Presumably my client's...
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