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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Measuring the profits (particular trades): land: trading transactions: acquisition and disposal of superior interest: leaseback

S681A-S681AN Income Tax Act 2007, S834-S848 Corporation Tax Act 2010

Where having acquired the freehold, a tenant immediately sells the freehold but subject to a leaseback giving him or her continuing occupation rights, it is doubtful whether a trading argument is possible.

This is because the tenant has not realised the potential marriage profit in the context of BIM60105. The tenant has acquired an encumbered asset (the freehold subject to a tenancy) and sold an encumbered asset (the freehold subject to the leaseback). Having established a position of being able to realise the marriage profit by a sale of the freehold the tenant has foregone the opportunity. This is almost certain to be for genuine ‘capital’ reasons - the desire to change landlords or secure more advantageous lease terms for example.

A trading argument in these circumstances will only be possible if, exceptionally, the lease back is for a materially shorter time than the original lease was due to run.

Note that where there is a sale and leaseback the anti-avoidance provisions listed above should be considered (see BIM61301)