Hello,
When we want to calculate Income Tax Liability or Corporation tax, and the individual or company received a premium for the grant of a ten-year lease, I saw that sometimes we include the whole amount of property income per formulae: Premium received*(51-Number of lease years)/50, but sometimes we divide that amount we got by formulae again by a number of lease years and then include annual income.
What is the difference, when we should include the whole amount that we have gotten by formulae and when we include that amount divided again by the number of lease years?
Thank you in advance.
Nina
Ask the Tutor ACCA TX-UK
PREMIUM RECEIVED FOR THE GRANT OF A TEN-YEAR LEASE
The rules depend on whom you are dealing with - the tenant or the landlord.
Landlord:
Receives the premium but oly pays tax on the proportion using either formula:
Premium x
less: Premium x 2% x (n-1) (x)
Taxable x
Or Premium taxable is P x 51-n/50
Tenant:
If a tenant has PAID a premium then they are allowed to claim an expense in their accounts for this but not the full amount. They can claim:
Taxable premium (on landlord) / years of the premium - thus spreading the expense over the life of the lease.
Hope this helps
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