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Landlord payment to vacate letting

Accounting treatment of landlord payment to vacate shop promptly

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I have a client who received a substantial sum from their landlord to vacate their rented shop at short notice, as the landlord wanted to sell the property on. Initially I thought to net this off against their rental payments for the year, but the receipt is substantially greater than the amount paid by the client in rent. Could you advise how I should account for this? I could reduce the expense to zero then post the remaining to income; alternatively post the whole to income;  but I am worried that I am inevitably missing some repercussions for this. Thanks for your help

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ALISK
By atleastisoundknowledgable...
29th May 2020 22:20

‘Other income’ or ‘non-operating income’.

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paddle steamer
By DJKL
29th May 2020 23:36

But do look at correct tax treatment here, there are vat and possible CT issues re a chargeable gain or CGT issues (depends upon legal status of the tenant)

Whilst my Maas book is in the office a careful read of this article by him may be worthwhile, you will see he states,

"A payment by the landlord to the tenant to surrender a lease will be consideration for the disposal of the lease and will attract CGT"

https://www.cbw.co.uk/2015/05/reverse-premiums/

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By Accountant A
15th Jun 2020 18:28

ilcy

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Replying to Accountant A:
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By James Blake
30th May 2020 12:43

Thanks for the reply. The lease was renewed every three months, so very short-term, with no premium paid at the beginning. I'll find more details of the lease agreement.

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Replying to James Blake:
paddle steamer
By DJKL
30th May 2020 14:08

Seems funny to pay a substantial sum for just 3 months.

What type of property was it as I believe down south you have some interesting rules re tenant rights and compensation at lease termination?

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Replying to DJKL:
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By James Blake
30th May 2020 15:38

No, my error - it was two years into a ten year lease. I believe there was large scale development work planned in the area, so the landlord I guess was to make a substantial sale.

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Replying to James Blake:
paddle steamer
By DJKL
30th May 2020 23:54

Well, tax wise seems likely to be a Chargeable Gain with no base cost.

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By Tax Dragon
31st May 2020 08:16

Though it is of course possible for a single payment to comprise more than one element.

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Replying to Tax Dragon:
paddle steamer
By DJKL
31st May 2020 11:13

I take that as a given, but lack of information really does not assist any conclusions on here.

Sight of all the legal paperwork (and there will be paperwork, like a Deed of Renunciation), ought to shed light on what was paid to whom for each and every element of the transaction.

But when all figured out if may all be slightly academic anyway:- the former tenant may itself be a trading limited company and irrespective of what each element is the tax position may end up the same irrespective of quantum ascribed to the different elements.

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Replying to DJKL:
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By Tax Dragon
31st May 2020 11:56

DJKL wrote:

I take that as a given.

Yes, but was it a taken? It shouldn't be too hard for the OP to get it right. And what's wrong with getting it right? (And it can make a difference. There could be an advantage to it being part income, part gain, for example.)

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