What does section 221 of the Corporation Tax Act 2009 do?

Section 221 taxes lump sum payments made by a tenant to a landlord or connected company for varying or waiving lease terms as property business receipts. It applies where the variation or waiver lasts 50 years or less and uses a formula to determine the taxable amount, recognising the receipt in the period the contract is entered into.

How is the taxable amount calculated under section 221?

The taxable amount is calculated using S × (50 − Y) / 50, where S is the lump sum paid and Y is the number of complete 12-month periods excluding the first within the effective period. The longer the variation or waiver lasts, the smaller the taxable proportion, reflecting the capital character of longer-duration payments.

When is the taxable receipt recognised under section 221?

The taxable receipt is recognised in the accounting period in which the contract providing for the variation or waiver is entered into. This applies whether the sum is due to the landlord or a connected company. The amount may be reduced under section 228 where the landlord itself paid a premium for a superior lease.

How is the duration of the variation or waiver measured for section 221?

The duration is measured by reference to the period during which the variation or waiver actually has effect. Any period falling after the lease itself expires is excluded from the calculation. This ensures the taxable amount reflects only the time the variation or waiver can have practical effect on the tenant's use of the property.

Corporation Tax Act 2009 section 221

Sums payable for variation or waiver of terms of lease

Section 221 deals with how payments made by a tenant for varying or waiving the terms of a lease are taxed as property business receipts in the hands of the landlord or a connected company.

Where a tenant pays a lump sum (not rent) to vary or waive a lease term, and the variation or waiver lasts 50 years or less, the recipient landlord or connected company is treated as receiving a taxable property business receipt
The taxable amount is calculated using the formula S × (50 − Y) / 50, where S is the lump sum paid and Y is the number of complete 12-month periods (ignoring the first) during which the variation or waiver has effect
The taxable receipt is recognised in the accounting period in which the contract providing for the variation or waiver is entered into, and the amount may be reduced if the additional calculation rule in section 228 applies
When measuring how long the variation or waiver has effect, any period falling after the lease itself expires is ignored

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