A bit unusual but -
client owns a lease for which he is entitled to a rent of lets say £50k per annum for the next 10 years.
both he (as landlord) and tenant are willing to enter into the following commercial arrangement;
cancelation of the lease in return for a fresh issue of shares in the tenant company (issue of approx 5-10% of the share capital, subjected to strict shareholders agreement)
Tax implications for both?
Replies (6)
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Unless it is a payment under a term in the lease, I would argue for the client owning the lease that he is disosing of the lease (captial asset) for a consideration (shares in the tenant company). Thererefore CGT transaction.
If it is under a term in the lease, then there is the possbility of some of it being treated as "rent" and some being capital.
But your post suggested it was a cancellation i.e surrender of a lease
If a premium is deemed under para 3(2) or 3(3) to have been received as consideration for the surrender of a lease, the gain on its grant is not recalculated. Instead, the ‘premium’ is treated as consideration for a separate transaction consisting of the disposal by the landlord of his interest in the lease (TCGA 1992, Sch 8, para 3(4)). This separate transaction is probably itself a part disposal of the landlord’s interest in the property.
Yes - it would be - and you would need to calcuate the premium - the question is - is the shares in leiu of rent?