Income and Corporation Taxes Act 1988

37 Premiums paid etc: deductions from premiums and rent received. U.K.

(1) M1 This section applies in any case where in respect of a lease of any premises—

[F2 (a) any amount falls to be treated as a receipt of a Schedule A business by virtue of section 34 or 35, F3 . . .

(b) any amount would fall to be so treated but for the operation of subsection (2) or (3) below,

[F4 (c) any amount falls to be treated as a receipt of a UK property business by virtue of any of sections 277 to 282 of ITTOIA 2005 (receipts in respect of lease premiums, sums payable instead of rent, for surrender of lease and for variation or waiver of term of lease and assignments), or

(d) any amount would fall to be so treated but for the operation of the rule in section 288 of that Act (the additional calculation rule),]]

and [F5 that amount] is in this section [F6 and section 37A] referred to as “the amount chargeable on the superior interest” and any such lease is referred to as “the head lease”.

(2) Where—

(a) a lease is granted out of, or there is a disposition of, the head lease, and

(b) in respect of that grant or disposition a [F7 company] would, apart from this subsection, [F8 be treated by virtue of section 34 or 35 as receiving any amount as income in the course of carrying on a Schedule A business] (“the later chargeable amount”),

then the amount [F9 which [F10 the company] shall be treated as having so received] shall, subject to subsection (3) below, be the excess (if any) of the later chargeable amount over the appropriate fraction of the amount chargeable on the superior interest.

(3) Where a [F11 company] would, apart from subsection (2) above, be [F12 treated by virtue of section 34 or 35 as having received any amount as income in the course of carrying on a Schedule A business and falls to be so treated] in respect of a lease or disposition which extends to a part only of the premises subject to the head lease, the amount [F13 which [F14 the company] shall be treated as having so received] shall be the excess (if any) of the later chargeable amount over the appropriate fraction of the amount chargeable on the superior interest as, on a just apportionment, is attributable to that part of the premises.

(4) M2 Subject to subsection (5) below, [F15 a company which is] for the time being entitled to the head lease shall be treated for the [F16 purpose, in computing the profits of a Schedule A business, of making deductions in respect of the disbursements and expenses of that business] as paying rent for those premises (in addition to any actual rent), becoming due from day to day, during any part of the period in respect of which the amount chargeable on the superior interest arose for which [F17 the company] was entitled to the head lease, and, in all, bearing to that amount the same proportion as that part of the period bears to the whole.

(5) M3 Where subsection (2) above applies, subsection (4) above shall apply for the period in respect of which the later chargeable amount arose only if the appropriate fraction of the amount chargeable on the superior interest exceeds the later chargeable amount, and shall then apply as if the amount chargeable on the superior interest were reduced in the proportion which that excess bears to that appropriate fraction.

(6) Where subsection (3) above applies, subsections (4) and (5) above shall be applied separately to the part of the premises referred to in subsection (3) above and to the remainder of the premises, but as if for any reference to the amount chargeable on the superior interest there were substituted a reference to that amount proportionately adjusted.

(7) M4 For the purposes of this section—

(a) the appropriate fraction of the amount chargeable on the superior interest is the fraction—

where—

A is the period in respect of which the later chargeable amount arose; and

B is the period in respect of which the amount chargeable on the superior interest arose; and

(b) the period in respect of which an amount arose—

(i) where it arose under section 34, shall be the period treated in computing the amount as being the duration of the lease;

(ii) where it arose under section 35, shall be the period treated in computing the amount as being the duration of the lease remaining at the date of the assignment;

[F18 (iii) where it arose under Chapter 4 of Part 3 of ITTOIA 2005 (profits of property businesses: lease premiums etc.), shall be its receipt period (within the meaning of that Chapter (see section 288(6)).]

(8) M5 Where the amount chargeable on the superior interest arose under section 34(2) [F19 or under section 277 of ITTOIA 2005 by virtue of section 278 of that Act (amount treated as lease premium where work required)] by reason of an obligation which included the carrying out of work in respect of which any capital allowance has fallen or will fall to be made, subsections (1) to (6) above shall apply as if the obligation had not included the carrying out of that work and that amount had been calculated accordingly.

(9) M6 An amount or part of an amount shall not be deducted under this section more than once from any sum, or from more than one sum, and shall not in any case be so deducted if it has been otherwise allowed as a deduction in computing the income of any person for [F20 income tax or corporation tax] purposes [F21 or if it has been deducted under the rule in section 288 of ITTOIA 2005 (the additional calculation rule) in calculating the amount of a receipt of a property business (within the meaning of that Act) under Chapter 4 of Part 3 of that Act.].

[F22 (10) In the application of this section to Scotland the reference to a lease being granted out of the head lease is to the grant of a sublease of land subject to the head lease.]

Textual Amendments

F2 S. 37(1)(a)(b) substituted (with effect as mentioned in s. 38(2)(3) of the amending Act) by Finance Act 1998 (c. 36), s. 38(1), Sch. 5 para. 18(2), (with Sch. 5 para. 73)

F3 Word in s. 37(1)(a) repealed (6.4.2005 with effect in accordance with s. 883(1) of the repealing Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(2)(a), Sch. 3 (with Sch. 2)

F4 S. 37(1)(c)(d) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(2)(b) (with Sch. 2)

F5 1990 s.89and Sch.14 para.2 (correction of errors)—deemed always to have had effect. Previously

“subsection (2) below”, “this subsection”

and

“the amount of that tax”

respectively.

F6 Words in s. 37(1) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(2)(c) (with Sch. 2)

F7 Word in s. 37(2) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(3)(a) (with Sch. 2)

F8 Words in s. 37(2)(b) substituted (with effect as mentioned in s. 38(2)(3) of the amending Act) by Finance Act 1998 (c. 36), s. 38(1), Sch. 5 para. 18(3)(a), (with Sch. 5 para. 73)

F9 Words in s. 37(2) substituted (with effect as mentioned in s. 38(2)(3) of the amending Act) by Finance Act 1998 (c. 36), s. 38(1), Sch. 5 para. 18(3)(b), (with Sch. 5 para. 73)

F10 Words in s. 37(2) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(3)(b) (with Sch. 2)

F11 Word in S. 37(3) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(4)(a) (with Sch. 2)

F12 Words in s. 37(3) substituted (with effect as mentioned in s. 38(2)(3) of the amending Act) by Finance Act 1998 (c. 36), s. 38(1), Sch. 5 para. 18(4)(a), (with Sch. 5 para. 73)

F13 Words in s. 37(3) substituted (with effect as mentioned in s. 38(2)(3) of the amending Act) by Finance Act 1998 (c. 36), s. 38(1), Sch. 5 para. 18(4)(b), (with Sch. 5 para. 73)

F14 Words in s. 37(3) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(4)(b) (with Sch. 2)

F15 Words in s. 37(4) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(5)(a) (with Sch. 2)

F16 Words in s. 37(4) substituted (with effect as mentioned in s. 38(2)(3) of the amending Act) by Finance Act 1998 (c. 36), s. 38(1), Sch. 5 para. 18(5), (with Sch. 5 para. 73)

F17 Words in s. 37(4) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(5)(b) (with Sch. 2)

F18 S. 37(7)(b)(iii) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(6) (with Sch. 2)

F19 Words in s. 37(8) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(7) (with Sch. 2)

F20 Words in s. 37(9) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(8)(a) (with Sch. 2)

F21 Words in s. 37(9) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(8)(b) (with Sch. 2)

F22 S. 37(10) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 20(9) (with Sch. 2)

Modifications etc. (not altering text)

C1 S. 37 modified (with effect in accordance with s. 39(4)(5) of the modifying Act) by Finance Act 1995 (c. 4), s. 39(3), Sch. 6 para. 12

C2 See 1979(C) s.106and Sch.3 para.6(1)—allowance under this subsection to be deducted from any loss on disposal of lease.

C3 See 1976(D) Sch.6 para.4(4)—no account to be taken of any deduction of realised development value. 1976(D)repealed by 1985 ss.93, 98(6)and Sch.27 Part Xwith effect from 19March 1985.

Marginal Citations

M1 SOURCE-1970 s. 83(1); 1978 s. 32(2)

M2 SOURCE-1970 s. 83(2)

M3 SOURCE-1970 s. 83(3)

M4 SOURCE-1970 s. 83(4)

M5 SOURCE-1970 s. 83(5)

M6 SOURCE-1970 s. 83(7)