Revenue Note for Guidance
A double deduction is allowed, as an expense in computing the profits or gains of a trade or profession, for rent paid on certain premises in qualifying resort areas which are occupied for the purposes of the trade or profession. The relief is available only where a bona fide commercial lease is entered into in the qualifying period for the letting of a building or structure in respect of which capital expenditure is incurred which qualifies for capital allowances under section 352 or 353, and where the lessee is not connected with the lessor. The relief is available for a maximum rental period of 10 years in respect of any one qualifying premises taking into account all lease periods in respect of the premises under qualifying leases.
(1) “qualifying lease” is a lease in respect of a qualifying premises granted in the qualifying period on bona fide commercial terms to a lessee who is not connected with the lessor or with any other person who is entitled to a rent in respect of the premises under that lease or any other lease.
“qualifying premises” is a building or structure the site of which is wholly within a qualifying resort area and which is let on bona fide commercial terms and which is —
However, in any case where the title to capital allowances is based on expenditure incurred on refurbishment, the building, structure or premises is not treated as a qualifying premises unless the refurbishment expenditure amounts to not less than 20 per cent of the market value (defined in section 351) of the building, structure or premises before its refurbishment.
Moreover, by virtue of section 355(2), a holiday cottage, apartment or other self-catering accommodation in the qualifying resort areas may not be treated as a qualifying premises for the purposes of the double rent allowance unless the person entitled to the capital allowances in respect of the expenditure incurred on its construction or refurbishment elects to disclaim those allowances.
(2) The maximum period for which the double rent allowance is available is 10 years in respect of any one premises. If a person enters into a qualifying lease in respect of a qualifying premises, all previous periods for which rent was payable in respect of the premises under a qualifying lease are taken into account in establishing the period of entitlement to the double allowance. Thus, for example, if a previous tenant had claimed a double rent allowance for a period of 4 years in respect of rent paid for the premises, the maximum period for which the double rent allowance would be available to a new tenant would be 6 years.
(3) A person who occupies a qualifying premises for the purposes of a trade or profession and who is entitled, in computing the profits or gains of the trade or profession, to a deduction for rent paid under a qualifying lease in respect of the premises for any period for which the relief under this section is available (see subsection (2)) is entitled to a further equivalent deduction, thereby giving a double allowance. In the case of a qualifying lease granted on or after 21 April, 1997, the double allowance is not given where the rent is payable to a connected person.
(4) A measure is included to counter possible abuse of the relief through cross-leasing between connected persons. Entitlement to the double rent allowance is conditional on both the claimant and any person connected with the claimant not having an interest in a premises which is itself leased and qualifies for a double rent allowance. This condition does not apply where the claimant can show that the renting by him/her of the premises which is the subject of his/her claim for the double rent allowance was not undertaken for the sole or main benefit of obtaining that allowance.
(5) A finance lease is not treated as a qualifying lease for the purposes of the double rent allowance. A lease is a finance lease if, at the inception of the lease, the aggregate of the current value of the minimum lease payments (including any initial payment, but excluding any payment for which the lessor will be accountable to the lessee) payable by the lessee in relation to the lease) amounts to 90 per cent or more of the fair value (that is, open market value less any grants receivable towards the cost of purchase of the premises) of the premises. A lease is also a finance lease if, in substance, it provides the lessee with the risks and benefits of ownership of the premises other than legal title to the premises.
Relevant Date: Finance Act 2021