The taxable part of the consideration is calculated by the formula:

16 − n

15

where ‘n’ is the term of the new lease expressed in years or, if that term is less than a year, where ‘n’ is 1.

(ITA 2007, s. 681BB(1), (3)–(5)).

Example 1

Alan leases land, which he occupies for the purpose of his trade. Alan receives tax relief for the annual rent of £1,000 paid under the lease by way of a deduction in computing his trading results.

Alan surrenders the lease to the landlord and on 1 January 2009 receives in return £90,000, a capital sum. At the time of the surrender the lease has 50 years, or less, to run.

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