Example
In the example at
BLM71300 eventually Bank (the lessor) is
taxable on the gain arising when it sells the 999 years lease to
the option-holder. This is within the capital gains regime and in
computing the taxable gain Bank can deduct the cost of the asset
and indexation allowance on the cost. If there is any residual
gain, capital losses are available to cover it. Assuming a rate of
4% a year, the effect of indexation allowance might look like this.
In £millions
| Disposal Proceeds | 100 |
| Cost | 70 |
| Indexation | 20 |
| Gain | 10 |
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Bank (the lessor) is therefore getting indexation allowance
to set against what is in substance interest. If it had made a
normal loan it would not be able to do so. Also, Bank can use
capital losses or roll-over reliefs which cannot normally be used
to shelter income.
