Corporation Tax Act 2010 section 839

Deduction not to exceed commercial rent

Section 839 limits the tax deduction available for lease payments made in connection with a sale and leaseback arrangement, ensuring the deductible amount does not exceed the commercial rent for the relevant period.

• Where land has been transferred and the transferor or an associate makes lease payments (whether rent or other payments), the deductible amount is subject to a cap based on commercial rent.
• Before applying the cap, any service charge element of the payment is stripped out; the cap applies only to the remaining non-excluded portion of the payment.
• The deductible amount of the non-excluded portion must not exceed the commercial rent that would be payable for the period to which the payment relates.
• Commercial rent is determined by reference to separate rules that compare the actual payment with what would be expected in an arm's length transaction for the same property and period.