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Income Tax (Trading and Other Income) Bill


Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.

127

 

(b)   

the sum is due to the landlord or a person who is connected with the

landlord, and

(c)   

the period for which the variation or waiver has effect is 50 years or less.

(2)   

The person to whom the sum is due is treated as—

(a)   

entering into a transaction mentioned in section 264 (if the land to

5

which the lease relates is in the United Kingdom) or section 265 (if that

land is outside the United Kingdom), and

(b)   

receiving the amount calculated under subsections (4) and (5) as a

result of that transaction.

(3)   

That amount is brought into account as a receipt in calculating the profits of the

10

property business which consists of or includes that transaction for the tax year

in which the contract providing for the variation or waiver is entered into.

(4)   

The amount of the receipt is given by the formula—equation: cross[char[S],id[over[plus[num[50.0000000000000000,"50"],minus[char[Y]]],num[50.0000000000000000,

"50"]]]]

   

where—

S is the sum payable as consideration for the variation or waiver, and

15

Y is the number of complete periods of 12 months (other than the first)

comprised in the period for which the variation or waiver has effect.

(5)   

But, if the rule in section 288 (the additional calculation rule) applies, the

amount given by the formula in subsection (4) is reduced by the amount

calculated in accordance with section 288.

20

(6)   

In determining for the purposes of this Chapter the duration of the period for

which the variation or waiver has effect, any part of the period that falls after

the expiry of the effective duration of the lease is excluded.

282     

Assignments for profit of lease granted at undervalue

(1)   

This section applies to an assignment of a short-term lease if—

25

(a)   

the lease was granted at an undervalue, and

(b)   

a profit is made on the assignment.

(2)   

The person who assigns the lease is treated as—

(a)   

entering into a transaction mentioned in section 264 (if the land to

which the lease relates is in the United Kingdom) or section 265 (if that

30

land is outside the United Kingdom), and

(b)   

receiving the amount calculated under subsections (4) and (5) as a

result of that transaction.

(3)   

That amount is brought into account as a receipt in calculating the profits of the

property business which consists of or includes that transaction for the tax year

35

in which the consideration for the assignment becomes payable.

(4)   

The amount of the receipt is given by the formula—equation: cross[char[P],id[over[plus[num[50.0000000000000000,"50"],minus[char[Y]]],num[50.0000000000000000,

"50"]]]]

 
 

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.

128

 

   

where—

P is the lesser of—

(a)   

the profit on the assignment, and

(b)   

the amount by which the undervalue exceeds the total of the

profits (if any) made on previous assignments of the lease, and

5

Y is the number of complete periods of 12 months (other than the first)

comprised in the effective duration of the lease.

(5)   

But, if the rule in section 288 (the additional calculation rule) applies, the

amount given by the formula in subsection (4) is reduced by the amount

calculated in accordance with section 288.

10

(6)   

Section 283 explains references in this section to the grant of a lease at an

undervalue and the making of a profit on an assignment of a lease.

283     

Provisions supplementary to section 282

(1)   

This section operates for the purposes of section 282.

(2)   

A lease is granted at an undervalue if the terms subject to which it was granted

15

are such that the landlord who granted it could have required the payment of

an additional sum by way of premium, or additional premium, for its grant.

(3)   

The additional sum is the undervalue.

(4)   

The test in subsection (2) must be applied—

(a)   

having regard to values prevailing at the time the lease was granted,

20

and

(b)   

on the assumption that the negotiations for the lease were at arm’s

length.

(5)   

A profit is made on an assignment of a lease if the consideration for the

assignment exceeds—

25

(a)   

if the lease has not previously been assigned, any premium for which it

was granted, or

(b)   

in any other case, any consideration for which it was last assigned.

(6)   

The amount of the excess is the profit.

Other amounts treated as receipts

30

284     

Sales with right to reconveyance

(1)   

This section applies if—

(a)   

an estate or interest in land is sold subject to terms which provide that

it is to be, or may be required to be, reconveyed on a future date to the

seller or a person connected with the seller,

35

(b)   

the period beginning with the sale and ending with the earliest date on

which under the terms of the sale the estate or interest would fall to be

reconveyed is 50 years or less, and

(c)   

the price at which the estate or interest is sold exceeds the price at which

it is to be reconveyed.

40

(2)   

The seller is treated as—

 
 

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.

129

 

(a)   

entering into a transaction mentioned in section 264 (if the land is in the

United Kingdom) or section 265 (if the land is outside the United

Kingdom), and

(b)   

receiving the amount calculated under subsection (4) as a result of that

transaction.

5

(3)   

That amount is brought into account as a receipt in calculating the profits of the

property business which consists of or includes that transaction for the tax year

in which the estate or interest is sold.

(4)   

The amount of the receipt is given by the formula—equation: cross[char[E],id[over[plus[num[50.0000000000000000,"50"],minus[char[Y]]],num[50.0000000000000000,

"50"]]]]

   

where—

10

E is the amount by which the price at which the estate or interest is sold

exceeds the price at which it is to be reconveyed, and

Y is the number of complete periods of 12 months (other than the first)

comprised in the period beginning with the sale and ending with the

earliest date on which under the terms of the sale the estate or interest

15

would fall to be reconveyed.

(5)   

See section 286 for some provisions which are supplementary to this section.

285     

Sale and leaseback transactions

(1)   

This section applies if—

(a)   

an estate or interest in land is sold subject to terms which provide for

20

the grant of a lease directly or indirectly out of the estate or interest to

the seller or a person connected with the seller,

(b)   

the period beginning with the sale and ending with the earliest date on

which under the terms of the sale the lease would fall to be granted is

50 years or less, and

25

(c)   

the price at which the estate or interest is sold exceeds the total of—

(i)   

the amount of any premium for the lease, and

(ii)   

the value on the date of the sale of the right to receive a

conveyance of the reversion immediately after the lease begins

to run.

30

(2)   

This section does not apply if the lease is granted and begins to run within one

month after the sale.

(3)   

The seller is treated as—

(a)   

entering into a transaction mentioned in section 264 (if the land is in the

United Kingdom) or section 265 (if the land is outside the United

35

Kingdom), and

(b)   

receiving the amount calculated under subsection (5) as a result of that

transaction.

(4)   

That amount is brought into account as a receipt in calculating the profits of the

property business which consists of or includes that transaction for the tax year

40

in which the estate or interest is sold.

 
 

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.

130

 

(5)   

The amount of the receipt is given by the formula—equation: cross[char[E],id[over[plus[num[50.0000000000000000,"50"],minus[char[Y]]],num[50.0000000000000000,

"50"]]]]

   

where—

E is the amount by which the price at which the estate or interest is sold

exceeds the total of—

(a)   

the amount of any premium for the lease, and

5

(b)   

the value on the date of the sale of the right to receive a

conveyance of the reversion immediately after the lease begins

to run, and

Y is the number of complete periods of 12 months (other than the first)

comprised in the period beginning with the sale and ending with the

10

earliest date on which under the terms of the sale the lease would fall

to be granted.

(6)   

See section 286 for some provisions which are supplementary to this section.

286     

Provisions supplementary to sections 284 and 285

(1)   

This section operates for the purposes of sections 284 (sales with right to

15

reconveyance) and 285 (sale and leaseback transactions).

(2)   

Subsection (3) explains how to determine for the purposes of section 284 the

price at which an estate or interest is to be reconveyed when—

(a)   

the date on which the estate or interest would fall to be reconveyed is

not fixed under the terms of the sale, and

20

(b)   

the price at which it is to be reconveyed varies with the date.

(3)   

The price is taken to be the lowest possible under the terms of the sale.

(4)   

Subsection (5) explains how to determine for the purposes of section 285 the

total of—

(a)   

the amount of any premium for the lease, and

25

(b)   

the value on the date of the sale of the right to receive a conveyance of

the reversion immediately after the lease begins to run,

   

when the date for the grant of the lease is not fixed under the terms of the sale

and the total varies with the date.

(5)   

The total is taken to be the lowest possible under the terms of the sale.

30

(6)   

For the purposes of sections 284(3) and 285(4) (receipts of property business for

tax year in which estate or interest sold) an estate or interest in land is sold

when any of the following occurs—

(a)   

an unconditional contract for its sale is entered into,

(b)   

a conditional contract for its sale becomes unconditional, or

35

(c)   

an option or right of pre-emption is exercised requiring the seller to

enter into an unconditional contract for its sale.

 
 

 
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