Taxes Consolidation Act 1997 Schedule 14 paragraph 5

Sub-leases out of short leases

Paragraph 5 sets out how allowable expenditure is apportioned when a sub-lease is granted out of a short lease (one with 50 years or less to run) for a premium, replacing the normal part-disposal rules in section 557 with a formula based on the wasting asset table in paragraph 2.

• When a sub-lease is granted out of a short lease for a premium, the normal part-disposal formula in section 557 does not apply; instead, the allowable expenditure is calculated under this paragraph using the wasting asset percentages from the table in paragraph 2.
• Where the actual premium equals or exceeds the full premium (the premium that would be payable if the sub-lease rent matched the head lease rent), the allowable expenditure is the amount that, under the paragraph 2 table, would be written off over the duration of the sub-lease.
• Where the actual premium is less than the full premium (for example, because the tenant pays a higher rent and a lower premium), the allowable expenditure is reduced proportionately by the fraction: actual premium ÷ full premium.
• Where only part of the land in the head lease is covered by the sub-lease, the allowable expenditure is first restricted to the proportion that the market value of the sub-leased land bears to the market value of all the land in the head lease at the date of the sub-lease grant.