Taxation in the United Kingdom/Legislation/Section 34 of the Income and Corporation Taxes Act 1988

Subsection (1) is the main provision. It provides that where the payment of any premium is required under a lease, or otherwise under the terms subject to wwhich a lease is granted, and the duration of the lease does not exceed 50 years, the landlord is treated for corporation tax purposes as receiving as rent when the lease is granted an amount equal to:


 * $$P -\frac{(P x Y)}{50}\ $$

where P is the size of the premium, and Y is the number of complete periods of 12 months (other than the first) comprised in the duration of the lease.

Subsection (2) modify subsection (1) where the terms of the lease give the tenant an obligation to carry out work on the premises. It effectively provides that the value of that obligation is deemed to be an additional premium received by the landlord.

Subsection (3) disapplies subsection (2) if the landlord would have received a tax deduction in his rental income calculation for the costs incurred in carry out that work had the landlord incurred those costs himself.

Subsection (4) provides that if, under terms under which the lease was granted, a sum becomes payable by the tenant in lieu of the whole or any part of the rent for a period, it is to be deemed to be an additional premium received by the landlord when the amount becomes payable by the tenant. The spreading period is the period for which the payment is made to cover.

Subsection (5) provides that if, under the terms of a waiver or variaion of the lease, a sum becomes payable by the tenant otherwise than by way of rent, that sum is deemed to be an additional premium received by the landlord when the contract for the waiver or variation is entered into. The period for the spreading is the period for which the waiver or variation applies.

Subsections (6) and (7) provide the if a company connected to the landlord within the meaning of section 839 of ICTA receives an amount in relation to a rental business of the landlord, subsections (1), (4) and (5) apply to that company in a similar way to how they would have applied to the landlord had he received the amount.

Subsection (7A) provides that the amount treated under this section as rent is to be taken into account in computing rental income for the accounting period in which it is treated as received (ie it is not time apportioned by reference to periods of account).

Subsection (8) makes a provision where the deemed rental amount is to be paid by the tenant in instalments. It allows the Board of HM Revenue and Customs to give the company an option to pay the tax related to that amount in instalments over a period not exceeding eight years and, in any event, ending not later than th time at which the tax would be due on profits in the accounting period in which the last of the tenant's instalments is payable.