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HMRC internal manual

Business Income Manual

Private Finance Initiative (PFI): deemed premium on lease

S218, S230, S232 Corporation Tax Act 2009

Where a private sector operator is granted a lease of less than 50 years by a public sector purchaser, as part of a PFI agreement, the terms of which impose obligations on the operator to carry out capital works on the premises, the lease may be deemed to have required the payment of a premium (see PIM1212).

In such circumstances the landlord is treated, for tax purposes, as receiving a revenue property business receipt based on a proportion of the deemed premium (see PIM1205).

Where the payer of the deemed premium sublets, without receiving a premium, the amount of the deemed premium treated as a revenue receipt of the landlord is treated as if it were a revenue expenseincurred by the payer. That is, it is deductible in computing the property income profit over the period of the sublease (see PIM2310). However, note that the amount of the expense is restricted where the carrying out of work gives rise to qualifying expenditure for capital allowances.

A similar provision applies where the payer of the deemed premium occupies the land for the purposes of their trade (see BIM46255).

The relief is due even where the landlord is not chargeable on the deemed premium, e.g. because the landlord is exempt from tax (see PIM2310). However, in such cases it is necessary to ensure that an accurate valuation of the deemed premium is obtained (see PIM1232).