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HMRC internal manual

Business Income Manual

Leasing: avoidance: sale and leaseback of land: restriction of payments under lease

S681A-S681AN Income Tax Act 2007 (ITA 2007), S834-S848 Corporation Tax Act 2010 (CTA 2010)

The legislation places a limit, by reference to commercial rent, on certain Income Tax and Corporation Tax reliefs that can be obtained in respect of rents and other amounts paid for land that has been sold and leased back.

The legislation operates where:

  1. a person (the transferor) transfers, after 14 April 1964, any estate or interest in land, including buildings (see also BIM61310), and
  2. then or thereafter the transferor or any person associated with the transferor (as defined in S681AM ITA 2007, S847 CTA 2010) becomes liable to make a payment of rent or any other payment connected with the land or part of it. This includes a premium treated as a revenue expense; see BIM46250 onwards) - and that payment is the subject of one of the reliefs mentioned in BIM61210 (other than BLAGAB management expenses of an insurance company) or of a deduction in calculating the profits of a UK property business (see PIM2000 onwards).

In these circumstances the deduction by way of the relief in question is not to exceed the ‘commercial rent’ of the land for the period to which the payment relates (see BIM61305). See BIM61315 for the calculation rules.

The legislation does not require that any link should be shown between events (a) and (b) above.

As regards the treatment of arrangements entered into by medical practitioners with the General Practitioners Finance Corporation under a scheme for the sale and leaseback of surgery premises, see BIM54010, final sub-paragraph.