Corporation Tax

Premiums on leases

Produced by Tolley
  • 05 Apr 2022 08:42

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Premiums on leases
  • Outline
  • Premiums on short leases
  • Grant of a sublease
  • Tax relief for tenant
  • Deemed lease premiums
  • Payment of tax on lease premium by instalments
  • Lease surrender
  • Sale with right to reconveyance
  • Reverse premiums
  • More...

Premiums on leases


When a property investor grants a lease, potentially this could be done on the basis that the tenant pays a premium for the initial grant of the lease, in addition to also paying rent over the term of the lease. In the absence of specific legislation to the contrary, such premiums would all be regarded for tax purposes as a capital receipt. However, there is specific legislation to treat some or all of such premiums as income. There are also other situations in which the legislation treats sums paid in respect of interests in property as income which would otherwise be treated as capital. This guidance gives an overview of the tax treatment of the following:

  1. premiums on 'short' leases (leases with 50 years or less to run)

  2. sums paid for the surrender of leases

  3. mismatches between sale proceeds with price for reconveyance to the vendor, or person connected with the vendor

  4. sums paid by landlords for tenants to take on leases ('reverse premiums')

Premiums on 'long' leases (over 50 years) are treated in full as capital for tax purposes.

For guidance on the capital gains treatment of premiums paid on the grant of a lease, see the Grants of leases guidance note.

Premiums on short leases

Where a short lease is granted under terms that a premium must be paid, a certain proportion of that premium is treated as a receipt of the landlord’s UK or overseas property business. If the landlord does not have such a business, then

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

There's no margin for error. Think Tax.
Think Tolley.

TolleyGuidance gives you direct access to critical, comprehensive and up-to-date tax information and expertise you can rely on.


Popular Articles

Use of capital losses

If an individual sells a chargeable asset and makes an allowable loss, how can this be relieved?First of all, since the simplification of capital gains tax from 6 April 2008, the proforma to calculate a loss is the same as the proforma to calculate a gain. See the Basic calculation principles of

26 Apr 2022 10:42 | Produced by Tolley Read more Read more

What is a loan relationship?

Almost all companies will have some loan relationships. However, some items that are commonly assumed to be loan relationships are not (eg outstanding consideration for the sale / purchase of property and inter-company balances relating to unpaid amounts for goods or services, in each case where

05 Apr 2022 08:41 | Produced by Tolley Read more Read more

Taxation of dividend income

IntroductionA dividend is a distribution of profit by a company to its shareholders.A dividend is not only a payment in cash. It can be the issue of new shares in exchange for forfeiting the right to a cash payment (a stock dividend). For more detail, see the Cash dividends and Non-cash dividends

22 Mar 2022 09:45 | Produced by Tolley Read more Read more