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HMRC internal manual

Property Income Manual

From
HM Revenue & Customs
Updated
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Premiums: lease granted on or before 12 June 1969

Summary

This paragraph describes how the length of a lease is to be determined for the purpose of the charge on premiums etc. if the lease was granted on or before 12 June 1969. This guidance may be needed where a tenant claims relief under ICTA88/S37 or ITTOIA05/S287 onwards (see PIM2300 onwards) or ICTA88/S87 or ITTOIA05/S60 onwards (see BIM46250 onwards).

  • Normally, the length of the lease is taken as the term for which it was granted.
  • If the landlord or the tenant has an option to terminate it earlier, then the length of the lease is the length up to the earliest date on which it could be terminated.

Length of lease

When the lease was granted on or before 12 June 1969 there are two circumstances in which the length of the lease is to be taken as less than its stated term.

  • The terms of the lease might provide for it to be determined by notice given by either the landlord or the tenant. If so, its length for the purposes of the lease premiums legislation is no longer than the period up to the first date on which it could be determined by such a notice. See example 1 below.
  • The lease might be granted on terms that make it unlikely that the lease would continue beyond a date that is earlier than the actual expiry of the lease. In that case its length is treated as being the period up to that date only. See example 2 below.

(Although this paragraph deals with leases granted on or before 12 June 1969, you may still need to consider it if you encounter a payment which is to be treated as a premium at a later stage of the lease. Remember that the rules to use depend on the time the lease was granted.)

Example 1

On 1 June 1964, Ian granted Julian a 60-year lease on a flat for a premium of £1,000 and a rent for the first 21 years of £100 per annum. The rent for the remainder of the term is £500 per annum, but Julian, or his successor in title, has the option of breaking the lease at the end of 26 or 40 years.

Julian would have been treated in computing his 1964-65 Schedule A property income as having received the premium in respect of a 26-year lease, as the lease could have been determined at that time.

Example 2

On 1 October 1964 Kay granted a 51-year lease of a house to Linda for a premium of £5,000 and rent of £200 per annum.

Under the terms of the lease, Linda is required after 10 years to demolish and rebuild the house. She would then be allowed to occupy the new house at a commercial rent. If she does not rebuild, the lease is forfeited.

As it is unlikely that Linda would demolish and rebuild the house on such conditions, the lease is not likely to last more than 10 years. For the purposes of charging Kay to tax on the premium, the length of the lease is taken as 10 years.

For information about claims for relief for premiums paid see PIM2300 onwards.