Annex 1: Minor Changes in the Law Change 44: Property income: lease premiums etc: sums payable instead of rent, or for the variation or waiver of a term of a lease, for periods of 50 years or less: sections 219 and 221
This change explicitly applies the lease premium rules to certain sums paid instead of rent, or for the variation or waiver of a term of a lease, in cases where:
	the period for which the sum is paid, or the variation or waiver has effect, is 50 years or less, and
	the duration of the lease is more than 50 years.
It brings the income tax and corporation tax codes back into line.
For corporation tax purposes, section 34(1) of ICTA treats part (or all) of certain premiums (“CP”), payable in relation to a lease, as rent received by the landlord. In order for section 34(1) to apply to CP the lease in question must be one whose:
	duration…does not exceed 50 years.
Section 34(4) of ICTA is an anti-avoidance provision. It treats certain sums (“CS”) payable in lieu of rent by the tenant as if they were CP. This treatment potentially feeds through to section 34(1) of ICTA. But for section 34(1) to apply the duration of the lease must not exceed 50 years. In this respect section 34(4)(a) of ICTA also provides that:
	in computing the profits of the Schedule A business of which the sum payable in lieu of rent is by virtue of this subsection to be treated as a receipt, the duration of the lease shall be treated as not including any period other than that in relation to which the sum is payable.
On one interpretation the deeming in section 34(4)(a) of ICTA does not affect the duration of the lease for the purposes of section 34(1) of ICTA. If this interpretation were correct, then the treatment of CS for a period of one year would differ depending on whether the duration of the lease was 50 years or 51 years. Then in the case of the lease with a duration of 50 years, all of CS could be treated as a rental receipt by the landlord under section 34(1) of ICTA (with the tenant eligible for relief on CS). But in the case of the lease with a duration of 51 years, none of CS could be treated as a rental receipt under section 34(1) of ICTA (and the tenant might not be eligible for relief on CS).
Since the lease premium legislation was introduced in 1963, HMRC have not accepted such an interpretation. Section 219(1)(b) follows, for corporation tax, HMRC’s interpretation of section 34(4)(a) of ICTA. The same change was made for income tax in section 279(1)(b) of ITTOIA (see Change 68 in ITTOIA).
Section 34(5) of ICTA is also an anti-avoidance provision. It treats certain sums payable for the variation or waiver of the terms of a lease as if they were CP. This treatment also potentially feeds through to section 34(1) of ICTA. But for section 34(1) to apply the duration of the lease must not exceed 50 years. In this respect section 34(5)(a) of ICTA also provides that:
	in computing the profits of the Schedule A business of which that sum is by virtue of this subsection to be treated as a receipt, the duration of the lease shall be treated as not including any period which precedes the time at which the variation or waiver takes effect, or falls after the time at which it ceases to have effect.
On one interpretation the deeming in section 34(5)(a) of ICTA does not affect the duration of the lease for the purposes of section 34(1) of ICTA. The same considerations apply to this interpretation as have been noted above in relation to section 34(4)(a) of ICTA.
Since the lease premium legislation was introduced in 1963, HMRC have not accepted such an interpretation. Section 221(1)(c) follows, for corporation tax, HMRC’s interpretation of section 34(5)(a) of ICTA. The same change was made for income tax in section 281(1)(c) of ITTOIA (see Change 68 in ITTOIA).
This change prevents a company from contending, in certain cases, that a property business receipt does not arise or arises in a smaller amount. But correspondingly a tenant under the lease in question will not face a contention that there is no taxed receipt (or a smaller taxed receipt) by reference to which the tenant may be entitled to relief.
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.