Corporation Tax Act 2010 section 851

Taxation of consideration

Section 851 determines how the consideration received by a lessee (L) for assigning or surrendering a lease is taxed, ensuring that some or all of it is treated as income rather than as a capital receipt.

• An "appropriate amount" must be calculated from the total consideration (or each instalment if paid in instalments) that L receives for assigning or surrendering the original lease.
• If the new lease term is one year or less, the entire consideration is the appropriate amount; if the term exceeds one year, the appropriate amount is reduced using the formula (16 − N) / 15, where N is the lease term in years.
• Where L receives the consideration in the course of a trade and the rent under the new lease is deductible for tax purposes (whether paid by L or a person linked to L), the appropriate amount is treated as a trading receipt of that trade.
• Where those conditions are not met, the appropriate amount is instead charged to corporation tax as income under the general charge to corporation tax on income.