Taxes Consolidation Act 1997 Schedule 14 paragraph 7

Disallowance of premium treated as rent under superior lease

Paragraph 7 of Schedule 14 provides for adjustments to capital gains tax computations where a person grants a sub-lease out of a lease acquired for a premium and receives an income tax deduction under Section 103(2) for part of that premium, and also addresses the interaction of CGT with income tax charges arising under Sections 99 and 100.

• Where a sub-lessor is treated as paying additional rent under Section 103(2), any capital loss on the grant of the sub-lease must be reduced by the total deemed rent over the sub-lease term, but this adjustment cannot convert a loss into a gain or increase any gain.
• Section 551 (which normally prevents income receipts from being treated as CGT consideration) does not apply to amounts charged to income tax under Section 99 on the assignment of a lease at undervalue.
• Where an income tax assessment is adjusted under Section 100(2) following a sale of land with a right of reconveyance, corresponding adjustments must be made to the CGT computation.
• The interaction of these rules ensures that the same economic loss is not relieved twice for both income tax and CGT purposes, while preserving any excess income tax deduction for use against other rental income.