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Premiums on the grant of a lease ― outline

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 of the investor. Instead, 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