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Where Taxpayers and Advisers Meet

Premium on short lease - tax deductible

SYR
Posts:44
Joined:Tue Dec 13, 2011 12:22 pm
Premium on short lease - tax deductible

Postby SYR » Wed Mar 23, 2022 5:43 pm

Hi,

My company is going to acquire a short lease (2 years expiry terms) from the short leaseholder and the premium is over £100k.

My company has been trading at the premises for several years and has been paying the short leaseholder rent, annual rent is £80k per annum.

The location of the premises is excellent and it means my company will have to right to negotiate a new lease from the landlord when the existing lease expires. The rent charged by the landlord will only be £20k per annum.

Would anyone advise if the premium paid be deducted from the company's trading profit.

Many thanks

bd6759
Posts:3770
Joined:Sat Feb 01, 2014 3:26 pm

Re: Premium on short lease - tax deductible

Postby bd6759 » Wed Mar 23, 2022 7:40 pm

Not quite, but almost.

You need to work out the taxed receipt: that is the amount of premium that will taxed as rental income on the landlord. The formula is p x (50-y)/50
P = premium
Y = length of lease in complete years minus 1 year.

The taxed receipt is allowed as a deduction, as is any annual rent you might have to pay.

See s60-69 ITTOIA 2005.

https://www.legislation.gov.uk/ukpga/2005/5/part/2/chapter/5/crossheading/tenants-under-taxed-leases

bd6759
Posts:3770
Joined:Sat Feb 01, 2014 3:26 pm

Re: Premium on short lease - tax deductible

Postby bd6759 » Thu Mar 24, 2022 12:37 am

I should add that the taxed receipt is apportioned by days into tax years.

SYR
Posts:44
Joined:Tue Dec 13, 2011 12:22 pm

Re: Premium on short lease - tax deductible

Postby SYR » Thu Mar 24, 2022 1:15 pm

The trouble is the short leaseholder didn't pay much for the original lease when it was granted some 20+ years ago.

Does it mean it's all deductible as the company rent? Due to the pandemic and lockdown, the assignment of lease took over more than 2 years to complete. The unexpired term was original 5 years, now only 2 years left. I just do not want to get into trouble with HMRC in relation to the lease deduction.

Many thanks.


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