Income Tax (Trading and Other Income) Act 2005 section 281

Sums payable for variation or waiver of terms of lease

Section 281 deals with the tax treatment of lump sum payments made by a tenant in return for a landlord agreeing to vary or waive a term of a lease, treating part or all of such payments as taxable property income.

• When a tenant pays a lump sum (not rent) for a variation or waiver of a lease term lasting 50 years or less, and the payment is due to the landlord or a connected person, the recipient is treated as having taxable property business income
• The taxable amount is calculated using the formula S × (50 − Y) ÷ 50, where S is the sum paid and Y is the number of complete 12-month periods (excluding the first) in the variation or waiver period
• The taxable receipt is brought into account for the tax year in which the contract providing for the variation or waiver is entered into, and may be reduced under an additional calculation rule in section 288
• If the variation or waiver period extends beyond the effective duration of the lease, only the portion falling within the lease term is counted when determining the duration of the variation or waiver