Corporation Tax Act 2010 section 856

Position where lease may be ended

Section 856 deals with how the term of a new lease is determined for tax purposes where the lease contains a provision allowing early termination by the lessor or connected parties.

• This section applies where the new lease gives the lessor, the person L, or a person linked to L, the power to end the lease before the full term expires.
• Where such a power exists, the lease term is treated as ending on the earliest date on which that power could be exercised.
• This ensures that the effective lease term for tax purposes reflects the shortest period the lease is guaranteed to run, rather than the full stated term.
• The rule prevents tax advantages being gained by reference to a longer lease term when the lessor or connected parties have the ability to cut the lease short at an earlier date.