Annex 1: Minor Changes in the Law Change 45: Property income: lease premiums etc: sum payable to someone other than the landlord, or a person connected with landlord, for variation or waiver of term of lease: section 221
This change prevents an amount being treated as a receipt of the landlord’s property business, where a sum is payable by the tenant as consideration for the variation or waiver of a term of a lease to somebody other than the landlord or a person connected with the landlord.
It brings the income tax and corporation tax codes back into line.
Section 34(5) of ICTA provides:
The effect of this deeming may be to treat the landlord as receiving an amount by way of rent. This is subject to section 34(6) and (7) of ICTA.
Section 34(6) of ICTA provides that if a payment falls within section 34 (5) of ICTA but is due to a person other than the landlord, the landlord is not treated as receiving rent. And if the other person is a company, section 34(6) of ICTA treats that company as receiving an income receipt equal to the rent that the landlord would otherwise have been treated as receiving under section 34(5) of ICTA.
But section 34(7) of ICTA provides that section 34(6) of ICTA applies only in relation to a payment within section 34(5) of ICTA if the payment is due to a person who is connected with the landlord.
It follows that section 34(5) of ICTA might treat the landlord as receiving rent in cases where the consideration for the variation or waiver is not payable to the landlord (with the tenant potentially receiving relief for the amount of rent the landlord is treated as receiving). This is not the intention of section 34(5) of ICTA. In practice a landlord has not been treated as receiving, nor the tenant entitled to relief for, rental income in such cases. Section 221(1)(b) reflects that practice for corporation tax. The same change was made for income tax in section 281 of ITTOIA (see Change 70 in ITTOIA).
Relief will not be available to a tenant by reference to a property business receipt if, as a result of this change, a property business receipt does not arise to the landlord.
This change is adverse to some taxpayers and favourable to others in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.