Income Tax Act 2007 section 681BJ

Lease varied to provide for increased rent

Section 681BJ deals with the tax treatment where a lessee agrees to pay a higher rent under a varied lease in return for a capital consideration from the landlord, and treats the arrangement as if the original lease had been surrendered and a new short lease granted.

• The section applies where a lessee holds a lease of 50 years or less, claims income tax relief on the rent, and agrees with the landlord to vary the lease to increase the rent in return for a capital payment
• The consideration received by the lessee for agreeing to pay the higher rent must be one that would not otherwise be taxable except as capital in the lessee's hands
• The period during which the increased rent is payable must end within 15 years of the date the consideration (or its final instalment) is paid to the lessee
• Where all conditions are met, the lessee is treated as having surrendered the original lease for the capital consideration and as having been granted a new lease of 15 years or less on the varied terms, bringing the arrangement within the anti-avoidance rules of this chapter