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HMRC internal manual

Property Income Manual

HM Revenue & Customs
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Deductions: premiums paid: premises used for rental business


This page is about the relief that the payer of a chargeable premium can have in computing rental business profits. It applies when the premises are used for the purposes of a rental business, other than as a source of rents - for example as offices to run the business from.

Similar guidance on the relief for premises used for a trade, profession or vocation is at BIM46250 onwards.

Relief is given by spreading the chargeable amount over the period of the lease and treating it as if it were rent due (in addition to any actual rent). There are two stages to working out how much relief is due.

1) Work out the chargeable amount of the premium

The chargeable amount of the premium must be calculated - that is the amount of the premium on which the recipient of the premium is taxed (or would be if he were chargeable). You need to know the amount of the premium and the length of the lease. The calculation is described in PIM1205.

2) Spread the chargeable amount over the period of the lease

The chargeable amount is treated as if it were rent for the property (in addition to any actual rent) which becomes due from day to day throughout the period of the lease. This will be a deduction in computing the rental business profit.

Liaison with other offices

What to do about checking the chargeable amount of the premium with the office dealing with the landlord is covered at PIM2340.

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Legislation - IT cases to 2004-05 and CT cases

The relief for a Schedule A business is given by ICTA88/S37 (4). (The corresponding legislation covering trades, professions and vocations in ICTA88/S87 is one of the provisions of Part IV Chapter V that does not apply for Schedule A businesses.)

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Part only of premises used

The premium may have been paid for the premises only part of which is actually used for business. Then an appropriate fraction of the relief is due. ICTA88/S37 (3) achieves this by taking only a fraction of the ‘chargeable amount’ based on a ‘just apportionment’.

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Successors in title

The relief is available provided that the lease was granted for a chargeable premium etc. If the original tenant assigns the lease to someone else, the new tenant may have relief if the premises are used for Schedule A business purposes. This is because ICTA88/S37 (4) refers to ‘the person for the time being entitled to the lease’.

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Legislation - IT cases from 2005-06

The scope of the legislation is unchanged.

The main relieving provision is ITTOIA05/S292 - see ITTOIA05/S291 (2)(a). ITTOIA05/S294 deals with the case that part only of the premises is sublet.

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Interaction with Capital Allowances

For the ways that lease premium relief interacts with Capital Allowances see PIM2334.