Consider the following scenario, where we have a tenant occupying business premises which it wishes to vacate. The reasons could be various. For example, it has surplus office space, or perhaps the tenant is a big retailer who has discovered its mistake of opening a branch in a dead end part of town and now wants to make a “strategic withdrawal”.
In these circumstances, the tenant may be willing to pay the landlord a sum of money in order to free itself from its obligations under what has become an onerous lease. What are the tax implications of this transaction? In particular, is the tenant’s exit payment tax deductible?