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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Leasing: avoidance: sale and leaseback of land: definition of commercial rent

S681AJ, S681AK Income Tax Act 2007 (ITA 2007), S844, S845 Corporation Tax Act 2010 (CTA 2010)

Where the payment in question is rent under a lease, the commercial rent is the rent which might be expected to be paid under a lease of the land which:

  1. was negotiated in the open market when the actual lease was created;
  2. is of the same duration as the actual lease;
  3. is subject to the terms and conditions of the actual lease for liability for maintenance and repairs;
  4. provides for rent payable at uniform intervals and either at a uniform rate or at a progressive (but not diminishing) rate proportionate to the progressive rate provided for in the actual lease.

Where the payment in question is not rent under a lease (for example, where it is a rentcharge), the commercial rent is the rent which might be expected to be paid under a lease of the land which:

  • was negotiated in the open market when the rentcharge or other transaction was effected;
  • is a tenant’s repairing lease (ie the lessee is obliged to maintain and repair the whole, or substantially the whole, of the premises comprised in the lease);
  • is of the same duration as the period over which the payments are to be made or, if less, 200 years.

Where the legislation applies, the taxpayer should be asked for an estimate of the commercial rent, supported by any available evidence. Any case in which the commercial rent cannot be agreed should be submitted to CTISA (Technical).

‘Lease’ and ‘rent’ are defined in S681AL ITA 2007 and S846 CTA 2010