Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 4 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc
97

(5)
But, if the rule in section 228 (the additional calculation rule) applies, the
amount given by the formula in subsection (4) is reduced by the amount
calculated in accordance with section 228.
221
Sums payable for variation or waiver of terms of lease
(1)
This section applies if—
5
(a)
a sum becomes payable by the tenant (otherwise than by way of rent)
as consideration for the variation or waiver of a term of a lease,
(b)
the sum is due to the landlord or a company which is connected with
the landlord, and
(c)
the period for which the variation or waiver has effect is 50 years or less.
10
(2)
The company to which the sum is due is treated as—
(a)
entering into a transaction mentioned in section 205 (if the land to
which the lease relates is in the United Kingdom) or section 206 (if that
land is outside the United Kingdom), and
(b)
receiving the amount calculated under subsections (4) and (5) as a
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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
accounting period in which the contract providing for the variation or waiver
is entered into.
20
(4)
The amount of the receipt is given by the formula—

where—
S is the sum payable as consideration for the variation or waiver, and
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.
25
(5)
But, if the rule in section 228 (the additional calculation rule) applies, the
amount given by the formula in subsection (4) is reduced by the amount
calculated in accordance with section 228.
(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
30
the expiry of the effective duration of the lease is excluded.
222
Assignments for profit of lease granted at undervalue
(1)
This section applies to an assignment of a short-term lease if—
(a)
the lease was granted at an undervalue, and
(b)
a profit is made on the assignment.
35
(2)
The company which assigns the lease is treated as—
(a)
entering into a transaction mentioned in section 205 (if the land to
which the lease relates is in the United Kingdom) or section 206 (if that
land is outside the United Kingdom), and

Corporation Tax Bill
Part 4 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc
98

(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
accounting period in which the consideration for the assignment becomes
5
payable.
(4)
The amount of the receipt is given by the formula—

where—
P is the lesser of—
(a)
the profit on the assignment, and
10
(b)
the amount by which the undervalue exceeds the total of the
profits (if any) made on previous assignments of the lease, and
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 228 (the additional calculation rule) applies, the
15
amount given by the formula in subsection (4) is reduced by the amount
calculated in accordance with section 228.
(6)
Section 223 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.
223
Provisions supplementary to section 222
20
(1)
This section operates for the purposes of section 222.
(2)
A lease is granted at an undervalue if the terms subject to which it was granted
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.
25
(4)
The test in subsection (2) must be applied—
(a)
having regard to values prevailing at the time the lease was granted,
and
(b)
on the assumption that the negotiations for the lease were at arm’s
length.
30
(5)
A profit is made on an assignment of a lease if the consideration for the
assignment exceeds—
(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.
35
(6)
The amount of the excess is the profit.

Corporation Tax Bill
Part 4 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc
99

Other amounts treated as receipts
224
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
5
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 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
10
it is to be reconveyed.
(2)
The seller is treated as—
(a)
entering into a transaction mentioned in section 205 (if the land is in the
United Kingdom) or section 206 (if the land is outside the United
Kingdom), and
15
(b)
receiving the amount calculated under subsection (4) 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
accounting period in which the estate or interest is sold.
20
(4)
The amount of the receipt is given by the formula—

where—
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)
25
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
would fall to be reconveyed.
(5)
See section 226 for some provisions which are supplementary to this section.
225
Sale and leaseback transactions
30
(1)
This section applies if—
(a)
an estate or interest in land is sold subject to terms which provide for
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
35
which under the terms of the sale the lease would fall to be granted is
50 years or less, and
(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
40
conveyance of the reversion immediately after the lease begins
to run.

Corporation Tax Bill
Part 4 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc
100

(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 205 (if the land is in the
United Kingdom) or section 206 (if the land is outside the United
5
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
10
accounting period in which the estate or interest is sold.
(5)
The amount of the receipt is given by the formula—

where—
E is the amount by which the price at which the estate or interest is sold
exceeds the total of—
15
(a)
the amount of any premium for the lease, and
(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)
20
comprised in 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.
(6)
See section 226 for some provisions which are supplementary to this section.
226
Provisions supplementary to sections 224 and 225
25
(1)
This section operates for the purposes of sections 224 (sales with right to
reconveyance) and 225 (sale and leaseback transactions).
(2)
Subsection (3) explains how to determine for the purposes of section 224 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
30
not fixed under the terms of the sale, and
(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 225 the
total of—
35
(a)
the amount of any premium for the lease, and
(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.
40
(5)
The total is taken to be the lowest possible under the terms of the sale.

Corporation Tax Bill
Part 4 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc
101

(6)
For the purposes of sections 224(3) and 225(4) (receipts of property business for
accounting period 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
5
(c)
an option or right of pre-emption is exercised requiring the seller to
enter into an unconditional contract for its sale.
Additional calculation rule for reducing certain receipts
227
Circumstances in which additional calculation rule applies
(1)
The rule in section 228 (the additional calculation rule) applies in relation to the
10
calculation of receipts under—
section 217 (lease premiums),
section 219 (sums payable instead of rent),
section 220 (sums payable for surrender of lease),
section 221 (sums payable for variation or waiver of terms of lease), or
15
section 222 (assignments for profit of lease granted at undervalue).
(2)
It applies if conditions A and B are met.
(3)
Condition A is that—
(a)
in the case of a receipt under section 217, 219 or 220, the lease is granted
out of a taxed lease,
20
(b)
in the case of a receipt under section 221, the lease was granted out of a
taxed lease, and
(c)
in the case of a receipt under section 222, the assignment is of a taxed
lease.
(4)
A lease is a “taxed lease” for the purposes of this Chapter if—
25
(a)
there is a receipt under any of sections 217 to 222 in respect of the lease,
(b)
there would be such a receipt, but for the operation of the rule in section
228 (the additional calculation rule) in the calculation of its amount,
(c)
there is a receipt under any of sections 277 to 282 of ITTOIA 2005
(receipts in respect of lease premiums, sums payable instead of rent, for
30
surrender of lease and for variation or waiver of terms of lease and
assignments) in respect of the lease, or
(d)
there would be such a receipt, but for the operation of the rule in section
288 of that Act (the additional calculation rule) in the calculation of its
amount.
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In this Chapter a receipt falling within paragraph (a), (b), (c) or (d) is referred
to as a “taxed receipt”.
(5)
Condition B is that the taxed receipt, or if there is more than one, at least one of
them, has an unused amount.
(6)
See section 230 for an explanation of when a taxed receipt has an “unused
40
amount”.