I purchased a buy-to-let leasehold studio flat in 2003 for £65,000. As my tenant expressed an interest in purchasing the flat, I have recently extended the lease until the year 2168 at a premium of £10,750, plus legal costs. The approximate current value of the property is £75,000 to £80,000. If I were to sell the flat to my tenant for £80,000, would I be liable to CGT on £4,250.00? 

Arthur Weller replies:  

If I understand you correctly, you paid £10,750 to the person who owns the freehold, to extend the lease. This is a capital expense. Therefore, you are correct that if you sell for £80,000, your capital gain will be £4,250. See HMRC’s Property Income manual at PIM2120. The legal costs are also an allowable capital expense, so the capital gain of £4,250 can be reduced accordingly.