Chapter 2: New lease of land after assignment or surrender
Overview
980.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.
981.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.
982.In substance, however, the lump sum is a loan and the additional rent represents the repayment of principal and interest.
983.Where the Chapter applies, a proportion of the lump sum is to be treated as income of the recipient.
984.The Chapter corresponds to Chapter 2 of Part 19 of CTA 2010, which makes similar provision for the purposes of corporation tax. It has the following structure.
Section 681B summarises the Chapter.
Section 681BA states when the Chapter applies.
Sections 681BB and 681BC tax some or all of the consideration as income.
Section 681BD concerns relief for rent under the new lease.
Sections 681BE to 681BI deal with cases in which the new lease is deemed to end.
Section 681BJ deals with a case in which a lease is varied to provide for increased rent.
Sections 681BK to 681BM are interpretative.
Section 681B: Overview
985.This section summarises this Chapter. It is new.
986.The word “lease” appears in subsection (1) for the first time in this Chapter. On the meaning of “lease” in this Chapter, see section 681BM.
Section 681BA: New lease after assignment or surrender
987.This section states when this Chapter applies. It is based on section 780(1), (7) and (9) of ICTA.
988.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.
989.Subsection (2) specifies condition A, concerning the original lease.
990.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 681BM.
991.The expression “a deduction by way of relevant income tax relief” appears in subsection (2)(b) for the first time in this Chapter. It is defined in section 681BK.
992.Subsection (3) specifies condition B, concerning the assignment or surrender of the original lease. Section 1008 of ITA provides that in Scotland “assignment” means assignation, and thus gives effect to the application of section 24(5) of ICTA by section 780(8) of that Act. Section 1008 of ITA also provides that in Scotland “surrender” includes renunciation.
993.Subsection (4) specifies condition C, concerning the new lease.
994.The expression “a person linked to L” appears for the first time in this Chapter in subsection (4). It is defined in section 681BL.
995.Subsection (5) specifies condition D, concerning the relationship between the new lease and the original lease.
996.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 will not activate the legislation.
997.Subsection (7) signposts the transitional 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 CTA 2010 and Schedule 9 to this Act.
Section 681BB: Taxation of consideration
998.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), (3B), (3C), (7) and (8) of ICTA.
999.Subsection (1) requires an “appropriate amount” of the consideration to be found.
1000.Subsection (1)(a) refers to the assignment of the original lease. Section 1008 of ITA provides that in Scotland “assignment” means assignation, and thus gives effect to the application of section 24(5) of ICTA by section 780(8) of that Act. Section 1008 of ITA also provides that in Scotland “surrender” includes renunciation.
1001.Subsection (2) provides that the appropriate amount is not to be treated as a capital receipt.
1002.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.
1003.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.
1004.Subsection (6) provides that the way in which the appropriate amount is treated depends on whether certain specified conditions are met.
1005.If these conditions are met, subsection (7) treats the appropriate amount as a receipt of the trade, profession or vocation mentioned in subsection (6)(a).
1006.If the conditions in subsection (6) are not met, subsection (8) treats the appropriate amount as chargeable to income tax.
1007.Subsection (9) quantifies the amount charged, specifies the person liable and treats the amount charged as income.
Section 681BC: Position where new lease does not include all original property
1008.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 681BD: Relief for rent under new lease
1009.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 and paragraph 5 of Schedule 2 to ITTOIA.
Section 681BE: New lease treated as ending
1010.This section introduces three sections which treat the new lease as ending in certain circumstances. It is based on section 780(2) of ICTA.
1011.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. Section 780(2)(b) might on its own, however, 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 681BF: Position where rent reduces
1012.This section deals with the position where the rent is reduced. It is based on section 780(2) and (8) of ICTA.
1013.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.
1014.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.
1015.Subsection (3) supplements the definition of “rental period” in subsection (2)(d).
Section 681BG: Position where lease may be ended
1016.This section deals with the position where the lease makes provision for early termination. It is based on section 780(2) and (7) of ICTA.
Section 681BH: Position where lease may be varied
1017.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 681BI: Lease treated as ending: rentcharge
1018.This section supplements the previous three; it deals with rentcharges. It is based on section 780(2) and (7) of ICTA.
Section 681BJ: Lease varied to provide for increased rent
1019.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.
1020.Subsection (1) provides that four conditions must all be met if this section is to apply.
1021.Subsection (2) specifies condition A, concerning the original lease.
1022.Subsection (3) specifies condition B, concerning the variation of the lease.
1023.Subsection (4) specifies condition C, concerning the increase in the rent.
1024.Subsection (5) specifies condition D, concerning the period within which the increased rent is to be paid.
1025.Subsection (6) is the main operative provision. Condition A in subsection (2) is the same as condition A in section 681BA. 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 681BK: Relevant income tax relief
1026.This section defines deductions by way of relevant income tax relief. It is based on sections 779(13) and 780(1) of ICTA.
Section 681BL: Linked persons
1027.This section defines “a person linked to L” in this Chapter. It is based on section 780(7) of ICTA.
Section 681BM: Lease, lessee, lessor and rent
1028.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.
1029.Subsection (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. Subsection (6), which is new, states that in the application of the section to Scotland, “mortgage” includes the Scottish equivalents.
1030.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 subsection (6) is 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 already taken for income tax purposes when the definition of “lease” in section 24(1) of ICTA was rewritten in sections 364(1) and 879(1) of ITTOIA.
