Income Tax (Trading and Other Income) Act 2005 section 303

Rules for determining effective duration of lease

Section 303 sets out three rules for determining the effective duration of a lease for the purposes of taxing lease premiums, recognising that the real length of a lease may differ from the term stated in the lease document.

• Rule 1 shortens the effective lease duration where circumstances make it unlikely the lease will continue to its full term and the premium was not inflated to reflect the longer stated term.
• Rule 2 allows the effective duration to be extended where the tenant has an option to extend the lease and it appears likely the option will be exercised.
• Rule 3 treats the lease as continuing until the end of a further lease where the tenant, or a connected person, is or may become entitled to a further lease of the same or overlapping premises.
• The definition of "premium" for Rule 1 is broad, covering amounts treated as premiums where work is required, sums paid instead of rent, sums for lease surrender, and sums for varying or waiving lease terms.