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Lease premiums

B6.301A Lease premiums—overview

Lease premiums are amounts paid by incoming tenants in consideration for the grant of the lease. They are generally accompanied by a corresponding reduction in the rent paid during the term of the lease. On general principles, a premium is capital in nature so that, without special provisions, such payments would allow the recipient to convert income into a capital receipt, by seeking a higher premium in return for reduced rent. ITTOIA 2005, ss 276–307 (Pt 3, Ch 4) and CTA 2009, ss 215–247 (Pt 4, Ch 4) therefore provide that lease premiums and other similar receipts are treated, wholly or partly, as income. The rules apply to both income tax and corporation tax unless otherwise stated. It should be noted for the purposes of this Division that a landlord might be taxed under corporation tax whereas the tenant may be seeking relief for income tax purposes, or vice versa.

The basic rule is that part of a premium received for the grant