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HMRC internal manual

Capital Allowances Manual

Business Premises Renovation Allowance: Termination of lease, meaning of lease

CAA01/Ss 360Z3 and 360Z4

When a lease, which is the relevant interest in a building, terminates the followingrules apply:

If the lessee remains in possession of the building with the lessor’s consent without anew lease being granted, the lease that has terminated is treated as continuing for aslong as the lessee remains in possession.

If there was an option, in the lease that has terminated, for the lessee to be granted anew lease and the lessee exercises that option, the new lease is treated as a continuationof the old lease.

If the lessor pays a sum to the lessee when the lease terminates in respect of thebuilding, the lease that was terminated is treated as if it had come to an end by thelessee surrendering it in return for the sum that the lessor has paid him.

If another lease is granted to a different lessee when the lease terminates and the newlessee pays a sum to the original lessee in connection with the transaction, the twoleases are treated as if they were the same lease and as if that lease had been assignedby the old lessee to the new lessee in return for the sum which he or she received.

Example Cass leases a qualifying building from Ollie. Cass’s leaseis the relevant interest in the qualifying building.

  • When the lease expires she agrees with Ollie that she may stay on in the building for another 6 months. Cass’s lease is treated as continuing for another 6 months.
  • If there was an option in the lease for Cass to be granted a new lease and Cass exercises it, the new lease is treated as a continuation of Cass’s original lease.
  • When the lease terminates Ollie pays Cass £20,000 in respect of the building. Cass is treated as if she had surrendered the lease in return for the £20,000.
  • When Cass’s lease terminates Maureen is granted a lease of the building. Maureen pays £50,000 in connection with the transaction. The two leases are treated as if they were the same lease and as if Cass has assigned that lease to Maureen for £50,000.

In the BPRA legislation, lease includes an agreement for a lease, butonly where the term to be covered by the lease has begun, and any tenancy. It does notinclude a mortgage.

In Scotland leasehold interest means the interest of a tenant in property subject to alease.