Income Tax (Trading and Other Income) Act 2005 section 277

Lease premiums

Section 277 sets out how a premium paid on the grant of a short-term lease is treated as taxable property income, and provides the formula for calculating the amount brought into account.

• When a premium is paid for a short-term lease, the person entitled to the premium is treated as carrying on a property business transaction and must bring a taxable receipt into account
• The taxable amount is calculated using the formula: P × (50 − Y) ÷ 50, where P is the premium and Y is the number of complete twelve-month periods (after the first) within the effective duration of the lease
• The receipt is taxed in the tax year in which the lease is granted, as part of the profits of the relevant UK or overseas property business
• If the additional calculation rule in section 288 applies, the amount produced by the formula is reduced accordingly