Income Tax (Trading and Other Income) Act 2005 section 64

Restrictions on section 61 expenses: lease premium receipts

Section 64 restricts the deemed expense deduction available to a tenant under a taxed lease when that tenant grants a sublease and the sublease premium gives rise to a property business receipt that is itself reduced by reference to the original taxed receipt.

• When a tenant under a taxed lease grants a sublease and the sublease premium is brought into account as a property business receipt reduced under section 288 (or section 228 of CTA 2009) by reference to the original taxed receipt, the reduced receipt is called a "lease premium receipt".
• For any qualifying day falling within the receipt period of a lease premium receipt, the tenant is only treated as incurring a section 61 expense if the daily amount of the taxed receipt exceeds the daily reduction of the lease premium receipt; the allowable expense is limited to that excess.
• The daily amount of the taxed receipt is the unreduced taxed receipt divided by the number of days in its receipt period (A / TRP), and the daily reduction is the section 288 or section 228 reduction divided by the number of days in the lease premium receipt's receipt period (AR / RRP).
• Where more than one lease premium receipt has a receipt period covering the same qualifying day, the daily reductions of all such lease premium receipts are added together before comparing them with the daily amount of the taxed receipt.