Commentary

B2.447 Lease premiums paid

Business tax
Business tax | Commentary

B2.447 Lease premiums paid

Business tax | Commentary

B2.447 Lease premiums paid

A lease premium is a one-off payment that a tenant may be required to pay as well as the regular rental payments. Without specific legislation to the contrary, a premium paid on the grant or for the assignment of a lease of business premises would not on general principles be deductible, given that it is a payment linked to a capital asset. See for example Gillatt & Watts1 Whilst a lease premium is usually a taxable receipt in the hands of the landlord, the tenant will normally be able to claim a trading deduction for a proportion of the lease premium payment where it relates to a short lease (50 years or less), and the property is used for trading purposes. This is explored in further detail below.

Deemed income in respect of leases

Statutory provisions2 exist which treat certain capital receipts arising in respect of leases as if they were income (see B6.301). For example, if a lease lasting less than 50 years is granted for a premium, some or all of the premium will be treated as income of the grantor and thereby left out of account for capital gains tax purposes.

Where the land is used in connection with a trade, the income element is available as a trading deduction in the hands of the tenant3. A similar relief is given if the tenant is occupying the land for the purpose of carrying on a property business or the tenant has sublet the land.

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