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HMRC internal manual

Business Income Manual

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Specific deductions: premiums: assignment of lease

S61 Income Tax (Trading and Other Income) Act 2005, S63 Corporation Tax Act 2009

Where a taxed lease is assigned (or sold - see PIM1204) and the new tenant occupies or uses the land subject to the lease for the purposes of a trade, the new tenant inherits the old tenant’s entitlement to a deduction in respect of the premium.

Example

The facts are the same as the example in BIM46255, except that B Limited vacates the property after ten years and sells its lease to C Limited. The consideration for the sale is £100,000.

C Limited inherits B Limited’s entitlement to a trading deduction of £8,572 per annum for eleven years (21 less 10) or for such lesser period as C Limited occupies the property for trade purposes. If the rules dealing with the assignment of a lease at undervalue (see PIM1222) do not apply, the sum of £100,000 paid by C Limited to B Limited as consideration for the assignment of the lease is a capital payment which is not a premium taxable on B Limited and does not rank as a trading deduction allowable to C Limited.