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Corporation Tax Act 2010

Chapter 2: New lease of land after assignment or surrender
Overview

2502.This Chapter is based on section 780 of ICTA. It deals with the situation where the existing occupier of premises incurs additional rental liability in return for the payment of a lump sum.

2503.In form, the lump sum is the consideration received for assigning the lease, usually to a charity or a pension fund, and the lease-back is at an increased rent.

2504.In substance, however, the lump sum is a loan and the additional rent represents the repayment of principal and interest.

2505.Where the Chapter applies, a proportion of the lump sum is to be treated as income of the recipient.

2506.The Chapter has the following structure.

  • Section 849 summarises the Chapter.

  • Section 850 states when the Chapter applies.

  • Sections 851 and 852 tax some or all of the consideration as income.

  • Section 853 concerns relief for rent under the new lease.

  • Sections 854 to 858 deal with cases in which the new lease is deemed to end.

  • Section 859 deals with a case in which a lease is varied to provide for increased rent.

  • Sections 860 to 862 are interpretative.

Section 849: Overview

2507.This section summarises this Chapter. It is new.

2508.The word “lease” appears in subsection (1) for the first time in this Chapter. On the meaning of “lease” in this Chapter, see section 862.

Section 850: New lease after assignment or surrender

2509.This section states when this Chapter applies. It is based on section 780(1), (7) and (9) of ICTA.

2510.Subsection (1) provides that five conditions must be met if the Chapter is to apply. If, in a given case, the reader is satisfied that at least one of these conditions is not met, the reader need read no further in this Chapter.

2511.Subsection (2) specifies condition A, concerning the original lease.

2512.The word “lessee” appears in subsection (2)(a) for the first time in this Chapter. On the meaning of “lessee” in this Chapter, see section 862.

2513.The expression “a deduction by way of relevant corporation tax relief” appears in subsection (2)(b) for the first time in this Chapter. It is defined in section 860.

2514.Subsection (3) specifies condition B, concerning the assignment or surrender of the original lease. Section 1166 provides that in the application of the Corporation Tax Acts to Scotland “assignment” means assignation. This gives effect to the application of section 24(5) of ICTA by section 780(8) of that Act. Section 1166 also provides that in the application of the Corporation Tax Acts to Scotland “surrender” includes renunciation.

2515.Subsection (4) specifies condition C, concerning the new lease.

2516.The expression “a person linked to L” appears for the first time in this Chapter in subsection (4)(a). It is defined in section 861. See further the commentary on section 851(6) and (7).

2517.Subsection (5) specifies condition D, concerning the relationship between the new lease and the original lease.

2518.Condition E in subsection (6) preserves the rule that, if, before the legislation was introduced, there was a legal or equitable right to the grant of a new lease, then the grant of the new lease does not activate the legislation.

2519.Subsection (7) signposts the transitory provision based on the second limb of section 780(9) of ICTA. The “relevant provisions” are the paragraphs headed “New lease of land after assignment or surrender: right to new lease existed pre-22 June 1971 ” in the “sale and lease-back etc” Parts of Schedule 2 to this Act and Schedule 9 to TIOPA.

Section 851: Taxation of consideration

2520.This section taxes, as if it were income, some or all of the consideration received by the lessee. It is based on section 780(1), (3), (3A), (7) and (8) of ICTA.

2521.Subsection (1) requires an “appropriate amount” of the consideration to be found.

2522.Subsection (1)(a) refers to the assignment of the original lease. Section 1166 provides that in the application of the Act to Scotland “assignment” means assignation. This gives effect to the application of section 24(5) of ICTA by section 780(8) of that Act. Section 1166 also provides that in the application of the Act to Scotland “surrender” includes renunciation.

2523.Subsection (2) provides that the appropriate amount is not to be treated as a capital receipt.

2524.Subsection (3) defines the appropriate amount if the term of the new lease is not more than one year. Subsection (4) defines the appropriate amount if the term of the new lease is more than one year.

2525.In a case in which the term of the new lease (a) exceeds one year and (b) is not for a whole number of years, the formula in section 780(3) of ICTA does not expressly say how to deal with parts of years. Subsection (5) makes it clear that, in such a case, a part of a year is to be taken as an appropriate proportion of a year.

2526.Subsection (6) provides that the way in which the appropriate amount is treated depends on whether certain specified conditions are met.

2527.If these conditions are met, subsection (7) treats the appropriate amount as a receipt of the trade mentioned in subsection (6)(a).

2528.Subsections (6)(a) and (7) omit references to a profession and to a vocation where the source legislation refers to the carrying on by a company of a trade, profession or vocation. See the commentary on section 837 and Change 4 in Annex 1. This Change is not made in subsection (6)(b), because a person linked to L is not necessarily a corporation tax payer.

2529.If the conditions in subsection (6) are not met, subsection (8) treats the appropriate amount as chargeable to corporation tax under the charge to corporation tax on income.

Section 852: Position where new lease does not include all original property

2530.This section deals with the position where the new lease does not include all the original property. It is based on section 780(4) of ICTA.

Section 853: Relief for rent under new lease

2531.This section makes it clear that the normal rules for tax relief apply to rent under the new lease. It is based on section 780(1) of ICTA.

Section 854: New lease treated as ending

2532.This section introduces three sections which treat the new lease as ending in certain circumstances. It is based on section 780(2) of ICTA.

2533.Subsection (2) is a tie-breaker rule. Section 780(2) of ICTA indicates that if section 780(2)(a) and (2)(b) could both apply then only one of them applies, namely the one that produces the earlier date. But section 780(2)(b) might on its own produce different dates, and it seems to take section 780(2)(b)(i) and (ii) separately (see “as the case may be”) without expressly providing which prevails. But it would be anomalous if section 780(2) included a tie-breaker rule for some but not all of the possible cases, or if it had different tie-breaker rules for different cases. Subsection (2) therefore makes it clear that the earliest date prevails in all cases.

Section 855: Position where rent reduces

2534.This section deals with the position where the rent is reduced. It is based on section 780(2) and (8) of ICTA.

2535.Subsection (1) uses the expressions “rent for a relevant period” and “following comparable period”. Subsection (2)(a), (b) and (c) define “relevant period”, “following comparable period” and “rent for a period” respectively.

2536.Subsection (2)(a) uses the expressions “rental period” and “fifteenth anniversary [of the new lease]”. These expressions are defined in subsection (2)(d) and (e) respectively.

2537.Subsection (3) supplements the definition of “rental period” in subsection (2)(d).

Section 856: Position where lease may be ended

2538.This section deals with the position where the lease has a provision for early termination. It is based on section 780(2) and (7) of ICTA.

Section 857: Position where lease may be varied

2539.This section deals with the position where the lessee has the power to vary the terms of the lease in the lessee’s favour (for example, by reducing the rent which the lessee would otherwise have to pay). It is based on section 780(2) and (7) of ICTA.

Section 858: Lease treated as ending: rentcharge

2540.This section supplements the previous three; it deals with rentcharges. It is based on section 780(2) and (7) of ICTA.

Section 859: Lease varied to provide for increased rent

2541.This section deals with a case in which a lease is varied to provide for increased rent. It is based on section 780(6) of ICTA.

2542.Subsection (1) provides that four conditions must all be met if this section is to apply.

2543.Subsection (2) specifies condition A, concerning the original lease.

2544.Subsection (3) specifies condition B, concerning the variation of the lease.

2545.Subsection (4) specifies condition C, concerning the increase in the rent.

2546.Subsection (5) specifies condition D, concerning the period within which the increased rent is to be paid.

2547.Subsection (6) is the main operative provision. Condition A in subsection (2) is the same as condition A in section 850 (new lease after assignment or surrender). In consequence of subsection (6)(a), condition B in that section is met. In consequence of subsection (6)(b), conditions C and D in that section are met. Accordingly, if conditions A to D in this section are met, conditions A to D in that section are met and this Chapter therefore has effect.

Section 860: Relevant corporation tax relief

2548.This section defines deductions by way of relevant corporation tax relief. It is based on sections 779(13) and 780(1) of ICTA.

2549.This section omits references to a profession and to a vocation where the source legislation refers to the carrying on by a company of a trade, profession or vocation. See the commentary on section 837 and Change 4 in Annex 1.

Section 861: Linked persons

2550.This section defines “a person linked to L” in this Chapter. It is based on section 780(7) of ICTA.

Section 862: Lease, lessee, lessor and rent

2551.This section concerns the meaning of “lease”, “lessee”, “lessor” and “rent”. It is based on sections 24(1) and (6) and 780(8) of ICTA.

2552.Section (3) says that “lease” does not include a mortgage. This is based on section 24(1) of ICTA as applied by section 780(8) of ICTA. In fact, section 24(1) of ICTA says that a lease includes neither a mortgage nor a heritable security. A “heritable security” is the Scottish equivalent of a mortgage, although post-1970 heritable securities take the form of a standard security. Section 1166 contains a general provision to the effect that, in the application of the Act to Scotland, “mortgage” includes the Scottish equivalents. Accordingly, subsection (3) has to be read as if it said that a lease includes neither a mortgage nor the Scottish equivalents. Subsection (3) therefore achieves the same effect as the source legislation, even though section 1166 has a definition of the Scottish equivalents that contains more detail than the words “mortgage or heritable security” in section 24(1) of ICTA. The approach is the same as that taken for income tax purposes when the definition of “lease” in section 24(1) of ICTA was rewritten to sections 364(1) and 879(1) of ITTOIA.

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