Readers’ forum: Will extension be deemed a disposal for tax purposes?

A client owns the freehold of a block of flats in London and granted a 99-year lease for one of the flats to a lessee some years ago. A premium was received which was subject to tax under the usual part disposal principles. The lessee now wishes to extend the lease to 999 years and a further premium of £10 000 will be paid. I understand that the premium is relatively small as there is little difference in value between a 99-year lease and a 999-year lease.

It seems that the transaction will be deemed for tax purposes as a disposal of the old lease by the lessee and the grant of a new lease by the freeholder. Further this will be the case whether a new lease is granted or whether the term of the existing lease is simply amended.

It is likely that the lessee may take...