Income Tax (Trading and Other Income) Act 2005 section Sch 2 para 19-20

Tenants under taxed leases

Sections 19 and 20 of Schedule 2 provide transitional rules ensuring that tenants who could claim deductions for lease premiums taxed on their landlords under the old ICTA rules (before 6 April 2005) continue to receive equivalent treatment under the ITTOIA 2005 regime (sections 60 to 67).

• Lease premium receipts arising under the old ICTA rules before 6 April 2005 are treated as "pre-commencement receipts" and qualify as taxed receipts under the new ITTOIA 2005 provisions, preserving the tenant's entitlement to spreading deductions
• The receipt period over which the tenant's deduction is spread follows the same duration used in the original ICTA calculation — either the full lease term (for premiums under the old section 34) or the remaining lease term at the date of assignment (for profits on assignment under the old section 35)
• Where a tenant was required under the lease to carry out work that qualified for capital allowances, the unreduced amount of the taxed receipt is calculated as though the obligation to carry out that work did not exist, preventing a double tax benefit
• Where a sub-lease has been granted out of the original taxed lease and a reduction was given under the old ICTA rules to avoid double-counting the premium, the new ITTOIA provisions apply equivalent restrictions so that the tenant's deduction is adjusted accordingly