I have a client who recently sold a holiday lodge they owned for 13 years. They only ever used the lodge as a holiday home for themselves and never rented it out. It was never elected as their principal private residence (PPR) for capital gains tax purposes. They paid £100,000 for this and have sold it for £80,000 less a commission of £10,000 giving net proceeds of £70,000. They had a licence/agreement to use the lodge for 40 years. Is this a wasting asset and so when calculating the capital loss arising I need to reduce the base cost of the lodge to reflect the diminution in value over the life of the asset? My calculation would be £100,000 x 27/40 = £67,500 for the base cost. Therefore, the gain (before the annual exemption) would be £2,500. Do you agree? 
 
Arthur Weller replies:  
I agree with your calculation, which fits in with the computation rules explained in HMRC’s Capital Gains manual at www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg76772 and CG76775. However, at CG76730 it states: ‘The treatment of leasehold land depends on the length of the lease. Where a non-renewable lease is for fifty years or less, it is treated as a wasting asset. Where the lease has a renewal clause, the lease should be treated as being granted for the extended term (unless the rules in TCGA92/SCH8/PARA8(2) or (3)&(4) apply). If that extended term is fifty years or less, it is treated as a wasting asset.’ So you need to check whether, in the case you are dealing with, the 40-year lease had a renewal clause.