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Hi Sir,
Would you please help with clear my understanding of the lease rental and lease premium.
suppose that a lease rents out a 21 year 70000 with a monthly rent of 5000. it was rented out at the 06/04/2017.
My understanding is
In the lessee book,
The rental expense is accounted for following the accrual basis which is.
5000 rental income allowable expenses.
premium ((51-21)/50) = 42000
Then we take 42000 / 21 = 2000 annual allowable expense.
and the different 42000-70000 = 28000 is capital assets and the taxpayer can get a capital allowance for this in the main pool.
On the lessor books.
Total lease income consists of.
annual rent of 5000
lease premium 42000the 28000 is taxed under capital gain
Is my understanding regarding both treatment in term of the capital allowance and capital gain for the lessee and lessor correct? or should I rewatch the lecture and what would you advise me if my understanding is incorrect?
Thank you for your time in advance.
Regards.
It is the capital part that you are getting wrong but this part is NOT in the syllabus and should therefore be ignored!!
Assuming the ANNUAL rent is 5,000 this will be an allowable expense for the lessee assuming the lessee uses this property in their trade and a further annual trading profit deduction of 2,000 will be available in respect of the premium paid.
There is no capital allowance to the lessee – again note this part is NOT in the syllabus and should therefore be ignored.
For the lessor there is annual rental income of 5,000 and in the year of receipt of the premium, a further property income assessment of 42,000.
The capital element does form the basis of a capital gains calculation but again this should be ignored as it’s not in the syllabus.
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