Section 277: Lease premiums
1114.This section contains the basic rule for the amount treated as a receipt if a premium is paid on the grant of a short-term lease. It is based on sections 34(1), (6) and (7A) and 37(2) of ICTA.
1115.Section 34(1) of ICTA treats a landlord who receives a premium as receiving an amount by way of rent. Section 34(6) of ICTA treats a person other than a landlord who receives a premium as receiving income as a result of entering into a transaction within paragraph 1(2) of Schedule A in section 15(1) of ICTA.
1116.This section instead treats both landlords and non-landlords as entering into a transaction mentioned in section 264 of this Act (if the land to which the lease relates is in the United Kingdom) or section 265 of this Act (if the land to which the lease relates is outside the United Kingdom).
1117.Section 264 in Chapter 2 of Part 3 of this Act provides that a person’s UK property business consists of:
“(a)every business which the person carries on for generating income from land in the United Kingdom, and
(b)every transaction which the person enters into for that purpose otherwise that in the course of such a business.”
1118.Section 269(1) of this Act provides that the profits of a UK property business are charged to tax under Chapter 3 of Part 3 of this Act whether the business is carried on by a UK resident or a non- UK resident.
1119.Section 265 in Chapter 2 of Part 3 of this Act provides that a person’s overseas property business consists of:
“(a)every business which the person carries on for generating income from land outside the United Kingdom, and
(b)every transaction which the person enters into for that purpose otherwise that in the course of such a business.”
1120.Section 269(2) and (3) provides that the profits of an overseas property business are charged to tax under Chapter 3 of Part 3 of this Act only if the business is carried on by a UK resident but in the case of a UK resident to whom the remittance basis applies, only in respect of land in the Republic of Ireland.
1121.The effect of sections 264 and section 265 is that the transaction which subsection (2) of this section treats the person as entering will be included in the person's UK or overseas property business, or will constitute the person's UK or overseas property business if that person is not already carrying on such a business.
1122.The approach adopted in subsections (2) to (4) of section 277 is also followed in rewriting the rules on:
sums payable instead of rent in section 279;
sums payable for the surrender of a lease in section 280;
sums payable for the variation or waiver of the term of a lease in section 281;
assignments for profit of lease granted at undervalue in section 282;
sales with right to reconveyance in section 284; and
sale and leaseback transactions in section 285.
1123.Section 34(1) of ICTA treats rent treated as received by a landlord as received when the lease is granted. Section 34(7A) of ICTA provides that an amount treated as received as rent must be taken into account for the chargeable period in which it is treated as received. There is no corresponding rule for non-landlords in section 34(6).
1124.Subsection (3) requires the person to whom the premium is due (both landlord and non-landlord) to bring an amount into account in calculating the profits of the property business for the tax year in which the lease is granted. See Change 69 in Annex 1.
