Commentary

B5.248 Land sold and leased back—new lease of land after assignment or surrender

Business tax
Business tax | Commentary

B5.248 Land sold and leased back—new lease of land after assignment or surrender

Business tax | Commentary

B5.248 Land sold and leased back—new lease of land after assignment or surrender

Deductions by way of tax relief for rent payable under sale and lease back arrangements are restricted to the commercial rent1. The provisions2 explained in this Article apply to certain assignments (sales) or surrenders of leaseholds (but not freeholds) under lease back arrangements, whether or not the rent under the new lease exceeds the commercial rent. Although in form the lump sum received is consideration for assigning the lease and the lease back is at an increased rent, in substance the lump sum is a loan and the additional rent represents the repayment of principal and interest. Where the provision applies, a proportion of the consideration is treated as taxable income of the recipient and not as a capital receipt3, but there is no restriction on the amount of the deduction for rent payable under the new lease4. For these purposes a lease includes an agreement for a lease and any tenancy, but does not include a mortgage. A reference to a lessee or lessor should be read accordingly and includes a reference to the successors in title of a lessee or lessor. Rent includes a payment by a tenant for maintenance or repair not required by the lease5.

The provisions apply if each of the following conditions is met6:

  1.  

    (1)     Condition A

  2.  

    A company or person (L) is a lessee of land under a lease which has 50

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