ICTA88/S87 (4) provides that where a premium is chargeable in respect of property:
the lessee is allowed the same trading deduction as if the
lessee were the occupier of the premises. The deduction is computed
in accordance with
BIM46255.
Where the brewer charges a premium for the sub-lease of the
tied premises, the trading deduction allowable to the brewer for
the head lease is computed in the same way as the deduction
allowable to an intermediate landlord under Schedule A (see
PIM2320).
On 1 July 2001 A grants to B, who is a brewer, a 21-year lease
of premises for a premium of £210,000 and a rent of £800
per annum. B immediately grants a 10-year sub-lease to C (a tied
tenant) for a premium of £120,000 and a rent of £1,000
per annum.
The amount to be included in B's Case I liability as a
brewer, after allowing the deduction due under ICTA88/S87 (4), is
computed as follows:
| Premium receivable by A | £210,000 |
| Less £210,000 x 21 - 1/50 = | £84,000 |
| Chargeable amount | £126,000 |
| Premium receivable by B | £120,000 |
| Less £120,000 x 10 - 1/50 = | £21,600 |
| Later chargeable amount | £98,400 |
| Less deduction under ICTA88/S87 (4) | |
| £126,000 x 10/21 = | £60,000 |
| To be included in B's liability | £38,400 |
The difference between £126,000 and £60,000, or an appropriate part thereof, is available for set- off against a premium granted for a further sub-lease of the premises at the expiration of ten years. If, for example, B then grants a sub-lease for five years for a premium of, say, £60,000, the further deduction allowable is £126,000 x 5/21 = £30,000.
The facts are the same as in example 1 except that the
consideration for the grant of the 10-year sub-lease to C is a
premium of £50,000 and a rent of £8,000 per annum. The
chargeable amount of the premium receivable by B is £41,000
(£50,000 less £50,000 x 10 - 1/50 = £9,000) which is
less than the amount of £60,000.
The difference of £19,000 is therefore spread over the
ten years of the sub-lease, so that for each of those years B is
allowed a trading deduction of £1,900 per annum in addition to
the rent of £800 per annum payable to A.
As regards the treatment of rents receivable from tied houses
(and of short and long lease rents paid), see
BIM51430.
