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 2 — New lease of land after assignment or surrender
421

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
422

(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
423

(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.

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 2 — New lease of land after assignment or surrender
424

855
Position where rent reduces
(1)
If the rent for a relevant period exceeds the rent for the following comparable
period, the term of the new lease must be treated as ending on the date when
the relevant period ends.
(2)
For the purposes of this section—
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(a)
a relevant period is a rental period of the new lease ending before its
fifteenth anniversary,
(b)
the following comparable period (in relation to a relevant period) is the
rental period which is of the same duration as the relevant period and
which begins on the day following the end of the relevant period,
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(c)
the rent for a period is the total rent payable under the new lease in
respect of the period,
(d)
a rental period is a period in respect of which a payment of rent is to be
made, and
(e)
the fifteenth anniversary of the new lease is the fifteenth anniversary of
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the date on which its term begins.
(3)
For the purposes of this section—
(a)
all rental periods of a quarter must be treated as being of the same
duration, and
(b)
all rental periods of a month must be treated as being of the same
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duration.
856
Position where lease may be ended
(1)
This section applies if under the new lease the lessor, or L or a person linked to
L, has power to end the lease before the end of the term for which it was
granted.
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(2)
The term of the lease must be treated as ending on the earliest date with effect
from which the lessor, or L or a person linked to L, could end the lease by
exercising the power.
857
Position where lease may be varied
(1)
This section applies if under the new lease L, or a person linked to L, has power
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to vary, in a manner beneficial to L or a person linked to L, obligations under
the lease that are obligations of L or a person linked to L.
(2)
The term of the lease must be treated as ending on the earliest date with effect
from which L, or a person linked to L, could vary the obligations by exercising
the power.
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858
Lease treated as ending: rentcharge
(1)
Subsection (2) applies if a rentcharge payable by L, or a person linked to L, is
secured on all or part of the property subject to the new lease.
(2)
For the purposes of sections 855 to 857 the rent payable under the new lease
must be treated as equal to the sum of the rentcharge and the rent payable
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under the lease.