Tax position re this lease?

Tax position re this lease?

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A grants a 20 year lease to B under which B agrees to pay rent of £100 pa.  Subsequently (soon after) A grants an interposing lease to C who agrees to pay A £1 per annum but he (C) will benefit from the terms of the original lease granted from A to B.   C is connected to A.  What are the tax considerations??

Replies (10)

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By Steve Kesby
23rd Jul 2014 16:33

Interposing lease?

Are you saying that A is granting C a lease of the property that has already been leased to B, but subject to the lease to B.

So C will pay A £1 per annum, but will receive £100 per annum from B?

Is there not, therefore, an implied premium, as per CG70825? I don't think there's an income tax charge on an implied premium though.

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By blok
23rd Jul 2014 17:41

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you've got the idea correct.  I'm worried about an income tax charge under deemed premium rules.  I will look out my concern in the legislation and be back.

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By JCresswellTax
24th Jul 2014 09:26

I researched

This before and thought the answer was a CGT charge only.

Unfortunately I don't recall much more than that.

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By blok
31st Jul 2014 16:42

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CG7082 suggests that a deemed premium be treated like any other (i.e. some subject to IT some to CGT, however http://www.hmrc.gov.uk/manuals/cgmanual/cg70903.htm  suggests that IT is not in point.  some inconsistencies in the manuals.  anyhow... on the assumption that we are dealing with CGT only would folk agree that s165(7) would apply and that the gain could be held over?

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By Steve Kesby
31st Jul 2014 16:46

S. 165(7)

Don't you have to get past s. 165(2) first? Leasing an asset isn't a trade, profession or vocation.

Or is it agricultural land?

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By blok
31st Jul 2014 17:31

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agri land.

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By blok
31st Jul 2014 17:32

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sorry thought I had said that !

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By GuestXXX
17th Mar 2015 17:13

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By Steve Kesby
31st Jul 2014 19:34

Yes

Then s. 165(7) operates to let you have relief under s. 165 to the extent of the undervalue of the grant.

The reason for there not being any deemed income is that A got deemed income on the first grant.

If A's an individual and C is their spouse or civil partner, then there's potentially a settlements argument. There's also a (more tenuous) settlements argument if C is a limited company owned by A and/or spouse/CP. Not sure if  HMRC would take it up though.

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By Branski
11th Nov 2015 12:20

Quick question please on similar point, different situation

3 siblings grant new 20 year lease to their trading limited company for £1 per year.  Imputted premium  

http://www.hmrc.gov.uk/manuals/cgmanual/CG70825.htm

http://www.hmrc.gov.uk/manuals/cgmanual/CG70903.htm

 

seem to apply but can they get s165 TCGA 1992? Perhaps argument that "interest in" land but lease may be separate asset and so not asset used for purpose of trade as it has just been created? 

 

 

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