Transfer of rental stream - Income or capital?

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Farming client rents out a piece of land with a telephone mast on it. He owns the land personally, but the land is used in a farming partnership.

Currently he gets £10k per year which will last for the next 7 years.

A 3rd party company has come in with an offer of £130k for him to enter into a 30 year lease with them. Looks to be £130k upfront premium – no rental payments.

If he agrees, then the rent he is due for the next 7 years will be due to the new company instead and it is then up to them to find a tenant for the remaining 23 years.

It looks like the legalities are going to be handled by creating an interposed lease – so the new company gets a 30 year lease, but is subject to the existing lease for the first 7 years.

Normally, the grant of a lease is dealt with via CGT, and as it is a short lease, an element would be charged to CGT and an element to income tax. No problems there.

My concern is with the transfer of the first 7 years. The client is guaranteed £70k from this as rent, which will be charged to income tax, and the proposed transaction would change this to a capital payment.

Are there any anti-avoidance provisions that would instead reclassify the £70k due for the first 7 years as an income tax charge?

I considered ITA 2007 Part 13 Ch 4, but as we’re not dealing with an “occupation”, I don’t think this will apply.

I then thought perhaps ITA 2007 Part 13 Ch 5A (Transfers of Income Streams) would apply. However, reading the CCH tax guidance on this, it states  that “the grant or surrender of a lease of land is to be regarded as a transfer of the land (and so does not involve a separation of a right to income from the asset)”. the separation of the right to income from the asset seems to be required for chapter 5A to apply, so it looks like it isn't relevant to these circumstances..

There’s a feeling at the pit of my stomach that I’m missing something. Does anyone have any suggestions?

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