CG71350 - Leases: capital sum received for alteration of terms: introduction

TCGA 92/Sch 8/Para 3

A landlord may receive a capital sum from a tenant in return for the variation of one or more of the terms of a lease or for the commutation of the rent due under the lease. »Ê¹ÚÌåÓýapp way in which the gain accruing to the landlord is calculated depends principally on three factors:

  1. whether the payment was made in commutation of the rent due under the lease, TCGA92/Sch 8/Para 3 (2), or whether it was made for the variation or waiver of one or more of the terms of the lease, TCGA92/Sch 8/Para 3 (3); and
  2. if the payment was made in commutation of the rent due, whether the terms of the lease provided for such a commutation payment; and
  3. whether the payment was made on or after 6 April 1996.

»Ê¹ÚÌåÓýapp main circumstances which will be encountered, and their treatments, can be summarised as follows:

  • If the payment was made for the waiver or variation of one or more of the terms of the lease, the capital sum is treated as a premium, or additional premium. »Ê¹ÚÌåÓýapp instructions at CG71352-CG71371 deal with this type of case.

  • If the payment was made in commutation of the rent due under the lease and the terms of the lease provided for the possibility of such a commutation payment, the capital sum is treated as a premium, or additional premium. Again the instructions at CG71352-CG71371 deal with this type of case.

  • If the payment was made in commutation of the rent due under the lease and the terms of the lease did not provide for such a payment, the capital sum is chargeable under TCGA92/S22 (1). In such a case, the date of disposal is determined by the normal rules, see CG14250+, and the gain or loss arising is calculated in the same way as that arising on any other part disposal. »Ê¹ÚÌåÓýapp example at CG71372 illustrates how this type of case is dealt with in practice.