Transitional measures applying to legacy leases

Capital Goods Scheme (CGS) and legacy leases

What is the CGS adjustment period for legacy leases?

The adjustment period for legacy leases is as follows:

• in the case of the creation of the legacy lease, the period of 20 years from creation of the lease
• in the case where the person holding the interest in the legacy lease on 1 July 2008 acquired it by assignment, the period remaining in the legacy lease at the time of that assignment or 20 years, whichever is the shorter.

The first 12 months of the adjustment period is treated as the Capital Goods Scheme (CGS) initial interval. Each subsequent interval is a period of 12 months. However, you may treat the second interval as the period from the end of the initial interval to the accounting date of the business. Subsequent intervals will then be 12 months from that date.

The legislation currently states that if the property has been developed since the acquisition, creation of that interest, the adjustment period is 20 years from the date of the most recent development of those goods. Revenue accepts that this clause will not apply to legacy leases where the person who owns that legacy lease carries out a development and that development is a refurbishment for VAT purposes.

Are legacy leases subject to the CGS annual adjustments?

Legacy leases are not subject to the normal CGS annual adjustments (based on 1/20), or the provisions relating to the landlord's option to tax.

Refurbishment (development on a previously completed building) that is completed prior to 1 July 2008, is not subject to the normal CGS annual adjustments.

However, if on or after 23 February 2010, a property which is subject to a legacy lease is used for the first time, or there is a change of use in the property, the big-swing test will apply to such a legacy lease.

Next: Legacy leases post-letting expenses