The following is a statutory analysis of the position when a lease of land is granted for a premium. We have already seen how this works in previous articles on the Lease Premium Rules. The first article was about how the rules operate to modify the capital gains treatment of the landlord, and the second article concerned how the landlord could use these rules to his advantage in claiming tax relief for the property.
However, these two articles raise some important questions concerning the nature of the premium and how it is taxed. Why should a landlord receiving a premium be taxed under the capital gains legislation, and a property trader be taxed under the income tax rules? More importantly:
“How does this result come about under the legislation?”
We shall discuss this more fully below.