281 Special provisions in regard to leases

Summary

A lessee may incur capital expenditure on the construction of an industrial building or structure or may have acquired the leasehold interest that is the relevant interest in relation to that expenditure. In such a case, the lessee would be entitled to writing-down allowances provided the lessee retains the relevant interest and the building or structure is in use as an industrial building or structure. Where the leasehold interest comes to an end while the building or structure is an industrial building or structure, the lessee’s entitlement to writing-down allowances would normally cease and the termination would be an event which gives rise to a balancing allowance or charge. This section now provides for special rules relating to the termination of leasehold interests.

Details

Lessee permitted to remain in possession on termination of lease

(1) Where a lease terminates and the lessee is allowed by the lessor to remain in possession of the building or structure without a new lease being granted, the lease is deemed to continue so long as the lessee remains in possession of the building or structure. This means that for so long as the lessee continues in possession a balancing event will not arise and the lessee will continue to have title to writing-down allowances.

New lease granted on termination of lease

(2) Where a lease terminates and the lessee is granted a new lease due to being entitled to such a new lease under law or under the terms of the original lease, the new lease is treated as if it were a continuation of the first lease. Thus, a balancing event will not arise on the termination of the first lease and the lessee will continue to have title to writing-down allowances.

Compensation received by lessee on termination of lease

(3) Where a lease terminates and the lessor pays any sum to the lessee in respect of a building or structure comprised in the lease, the lease is treated as if it had come to an end by reason of the surrender of the lease in consideration of the payment. (This could arise for instance where the lessor is obliged to compensate the lessee for an early surrender of the lease.) This means that the sum paid to the lessee has to be taken into account as “sale, insurance, salvage or compensation moneys” in computing any balancing allowance or charge to be made to the lessee on the termination of the lease.

Relevant Date: Finance Act 2021