Income Tax (Trading and Other Income) Act 2005 section 280

Sums payable for surrender of lease

Section 280 deals with the tax treatment of sums payable by a tenant as consideration for the surrender of a short-term lease, where the payment is required under the original terms of the lease.

• When a tenant pays a sum to surrender a short-term lease under its original terms, the person to whom the sum is due is treated as carrying on a property business transaction and must bring a calculated amount into account as a receipt
• The taxable amount is calculated using the formula S × (50 − Y) / 50, where S is the surrender payment and Y is the number of complete 12-month periods (excluding the first) in the lease's effective duration
• The receipt is brought into account for the tax year in which the surrender sum becomes payable, regardless of whether the person receiving it is the landlord
• If the additional calculation rule under section 288 applies, the amount produced by the formula is reduced by the amount calculated under that section