Swapping lease for equity

Swapping lease for equity

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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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By eastangliantaxadvisor
08th Aug 2012 15:41

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.

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By blok
08th Aug 2012 16:44

.

thanks,

I was hoping for no capital gain on this.

but

sch 8 3 (3) seems to say that should we alter the terms and receive a " sum" then that sum would be a deemed lease premium.  cg71350 also refers.

would the receipt of shares be deemed a "sum" for this purpose?

 

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By eastangliantaxadvisor
08th Aug 2012 21:08

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.

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By blok
09th Aug 2012 07:43

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The lease would remain but the rent would be reduced to a nominal amount.

I assume the deemed premium would be the value of the shares received?

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By eastangliantaxadvisor
09th Aug 2012 19:22

Yes - it would be - and you would need to calcuate the premium - the question is - is the shares in leiu of rent?

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By blok
09th Aug 2012 21:47

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Yes the shares are in leiu of rent.

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