Taxes Consolidation Act 1997 Schedule 14 paragraph 8

Expenditure by lessee under terms of lease

Paragraph 8 of Schedule 14 provides that where a landlord is charged to income tax on a deemed premium arising from a tenant's obligation to carry out work on leased premises, the amount so charged is treated as allowable capital gains tax expenditure for the landlord.

• Where a lease obliges the tenant to carry out work on the premises, the landlord is deemed under section 98(2) to have received a premium equal to the increase in value that the work would have produced at the date the lease was granted.
• An appropriate part of that deemed premium is charged to income tax on the landlord under Case V of Schedule D, in the same way as an actual premium.
• The amount charged to income tax is treated for capital gains tax purposes as allowable expenditure under section 552(1)(b), incurred at the time the lease was granted.
• This expenditure is allowable both on the disposal represented by the grant of the lease itself and on any subsequent disposal of the asset out of which the lease was granted.