Corporation Tax Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 1 — Payments connected with transferred land
418

842
Payments made for later periods
(1)
This section applies for the purposes of sections 839 to 841.
(2)
For the purposes of this section the relevant year (in relation to a payment) is
the year which begins with the date it is made.
(3)
If a payment is made for a period all of which is after the relevant year, it must
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be treated as made for the relevant year.
(4)
If a payment is made for a period part of which is after the relevant year, it must
be treated as if a corresponding part of it was made for the relevant year (and
no part for a later period).
Interpretation etc
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843
Exclusion of service charges etc
(1)
This section applies for the purposes of sections 838 and 839.
(2)
A payment must be excluded so far as it is in respect of any of the following—
(a)
services,
(b)
the use of relevant assets, and
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(c)
rates usually borne by the tenant.
(3)
The amount excluded must be just and reasonable.
(4)
If a lease or agreement contains provisions fixing the payments or parts of
payments which are in respect of services or the use of assets, those provisions
are not conclusive.
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(5)
A relevant asset is any description of property or rights other than land or an
interest in land.
844
Commercial rent: comparison with rent under a lease
(1)
Subsection (3) applies—
(a)
for the purpose of making a comparison under rule 4 of section 838(3)
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if section 838 has effect because of section 835(1), and
(b)
for the purpose of making a comparison under section 839(3) if section
839 has effect because of section 835(2).
(2)
In this section “the actual lease” means the lease mentioned in section 835(1)(b)
or (2)(b).
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(3)
The commercial rent is the rent which might be expected to be paid under a
lease, of the land in respect of which the payment mentioned in section
835(1)(b) or (2)(b) is made, which—
(a)
was negotiated in the open market when the actual lease was created,
(b)
is of the same duration as the actual lease,
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(c)
is subject to the terms and conditions of the actual lease as respects
liability for maintenance and repairs, and
(d)
provides for rent payable at uniform intervals and at an appropriate
rate.
(4)
Rent is payable at an appropriate rate if—
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Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 1 — Payments connected with transferred land
419

(a)
it is payable at a uniform rate, or
(b)
in a case where the rent payable under the actual lease is rent at a
progressive rate (and such that the amount of rent payable for a year is
never less than the amount payable for a previous year), it progresses
by gradations proportionate to those provided by the actual lease.
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845
Commercial rent: comparison with payments other than rent
(1)
Subsection (2) applies—
(a)
for the purpose of making a comparison under rule 4 of section 838(3)
if section 838 has effect because of section 836(1), and
(b)
for the purpose of making a comparison under section 839(3) if section
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839 has effect because of section 836(2).
(2)
The commercial rent is the rent which might be expected to be paid under a
lease, of the land in respect of which the payment mentioned in section
836(1)(b) or (2)(b) is made, which—
(a)
was negotiated in the open market when the rentcharge or other
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transaction mentioned in section 836(1)(b) or (2)(b) was effected,
(b)
is a tenant’s repairing lease, and
(c)
is of an appropriate duration.
(3)
A tenant’s repairing lease is a lease where the lessee is under an obligation to
maintain and repair the whole (or substantially the whole) of the premises
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comprised in the lease.
(4)
To see whether a lease is of an appropriate duration, take the period over
which payments are to be made under the rentcharge or other transaction,
and—
(a)
if that period is 200 years or more (or the obligation to make the
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payments is perpetual) an appropriate duration is 200 years, or
(b)
if that period is less than 200 years, an appropriate duration is the same
duration as that period.
846
Lease and rent
(1)
This section applies for the purposes of this Chapter.
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(2)
A reference to a lease includes a reference to any of the following—
(a)
an underlease, sublease, tenancy or licence, and
(b)
an agreement for a lease, underlease, sublease, tenancy or licence, and
(c)
in the case of land outside the United Kingdom, an interest
corresponding to a lease (as defined here).
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(3)
A reference to rent includes a reference to any payment under a lease.
(4)
A reference to rent under a lease includes a reference to expenses which the
tenant under the lease is treated as incurring in respect of the land subject to
the lease under any of—
(a)
sections 63 to 67 of CTA 2009 (land occupied for trade purposes), and
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(b)
sections 232 to 234 of that Act (taxed leases).
(5)
Expenses within subsection (4) must be treated as having been paid as soon as
they were incurred.

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 2 — New lease of land after assignment or surrender
420

847
Associated persons
(1)
This section applies for the purposes of this Chapter.
(2)
The following persons are associated with one another—
(a)
the transferor in an affected transaction and the transferor in another
affected transaction, if the two persons are acting in concert or if the two
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transactions are in any way reciprocal, and
(b)
any person who is an associate of either of those associated transferors.
(3)
Two or more bodies corporate are associated with one another if they
participate in, or are incorporated for the purposes of, a scheme—
(a)
for the reconstruction of any body or bodies corporate, or
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(b)
for the amalgamation of any two or more bodies corporate.
(4)
Persons are associated with one another if they are associates as defined in
section 882 (relatives, settlements, persons controlling bodies, joint owners
etc).
(5)
In subsection (2) “affected transaction” means a transaction within—
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(a)
section 835(1) or (2) or 836(1) or (2), or
(b)
section 681AA(1) or (2) or 681AB(1) or (2) of ITA 2007.
848
Land outside the UK
In the case of land outside the United Kingdom, expressions in this Chapter
relating to interests in land and their disposition must be taken to relate to
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corresponding interests and dispositions.
Chapter 2
New lease of land after assignment or surrender
Introduction
849
Overview of Chapter
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(1)
This Chapter provides that in certain circumstances where a lease of land is
assigned or surrendered and another lease is granted or assigned—
(a)
consideration received for the assignment or surrender of the first lease
is taxed as a trade receipt or charged to corporation tax on income, and
(b)
tax relief is allowed for rent under the other lease.
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(2)
The Chapter provides that in certain circumstances where a lease is varied it is
treated as surrendered and another lease is treated as granted.
Application of the Chapter
850
New lease after assignment or surrender
(1)
This Chapter has effect if each of conditions A to E is met.
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(2)
Condition A is that—

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 2 — New lease of land after assignment or surrender
421

(a)
a company (“L”) is a lessee of land under a lease which has 50 years or
less to run (“the original lease”), and
(b)
L is entitled in respect of the rent under the original lease to a deduction
by way of relevant corporation tax relief.
(3)
Condition B is that—
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(a)
L assigns the original lease to another person or surrenders it to L’s
landlord, and
(b)
the consideration for the assignment or surrender would not (apart
from this Chapter) be taxable except as capital in L’s hands.
(4)
Condition C is that—
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(a)
another lease (“the new lease”) is granted, or assigned, to L or a person
linked to L, and
(b)
the new lease is for a term of 15 years or less.
(5)
Condition D is that the new lease—
(a)
is of all or part of the land which was the subject of the original lease, or
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(b)
includes all or part of the land which was the subject of the original
lease.
(6)
Condition E is that neither L nor a person linked to L had, before 22 June 1971,
a right enforceable at law or in equity to the grant of the new lease.
(7)
If each of conditions A to D is met but condition E is not met, see the relevant
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provisions in Schedule 2 to this Act and Schedule 9 to TIOPA 2010.
Taxation of consideration
851
Taxation of consideration
(1)
An appropriate amount must be found under subsection (3) or (4) of—
(a)
the consideration received by L for the assignment or surrender, or
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(b)
each instalment of the consideration (if it is paid in instalments).
(2)
For the purposes of the Corporation Tax Acts the appropriate amount must be
treated in accordance with subsections (6) to (8) and not as a capital receipt.
(3)
If the term of the new lease is one year or less, the appropriate amount of the
consideration or instalment is the whole of it.
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(4)
If the term of the new lease is more than one year, the appropriate amount of
the consideration or instalment is the proportion of it found by the formula—
(5)
In subsection (4) N is the term of the new lease expressed in years (taking part
of a year as an appropriate proportion of a year).
(6)
The way the appropriate amount must be treated depends on whether the
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following conditions are met—
(a)
the consideration is received by L in the course of a trade, and
(b)
the rent payable by L, or a person linked to L, under the new lease is
allowable as a deduction in calculating profits or losses of a trade,
profession or vocation for tax purposes.
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Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 2 — New lease of land after assignment or surrender
422

(7)
If the conditions are met the appropriate amount must be treated as a receipt
of the trade mentioned in subsection (6)(a).
(8)
If the conditions are not met the appropriate amount must be treated as an
amount chargeable to corporation tax under the charge to corporation tax on
income.
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852
Position where new lease does not include all original property
(1)
This section applies for the purposes of section 851 if the property which is the
subject of the new lease does not include all the property which was the subject
of the original lease.
(2)
The consideration received by L must be treated as reduced to the portion of it
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found under subsection (3).
(3)
The portion is that which is reasonably attributable to such part of the original
property as—
(a)
consists of the property which is the subject of the new lease, or
(b)
is included in the property which is the subject of the new lease.
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(4)
The original property is the property which was the subject of the original
lease.
Relief for rent under new lease
853
Relief for rent under new lease
(1)
This section applies if the rent under the new lease is payable by a company
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within the charge to corporation tax.
(2)
This section also applies if—
(a)
Chapter 2 of Part 12A of ITA 2007 (provision for income tax
corresponding to this Chapter) has effect, and
(b)
the rent under the new lease is payable by a company within the charge
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to corporation tax.
(3)
Any provision of CTA 2009 or ICTA providing for deductions or allowances by
way of corporation tax relief in respect of payments of rent applies in relation
to the rent under the new lease.
(4)
In subsection (2), and in subsection (3) as applied by subsection (2), references
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to the new lease and rent are to be read as in Chapter 2 of Part 12A of ITA 2007.
New lease treated as ending
854
New lease treated as ending
(1)
Sections 855 to 857 treat the new lease as ending in certain circumstances for
the purposes of this Chapter.
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(2)
If any of those provisions apply in a given case, and the new lease is treated as
ending on different dates, it must be treated as ending on the earlier or earliest
of them.