BIM64365 - Private finance initiative (PFI): deemed premium on lease

Where a private sector 'operator' is granted a lease of less than 50 years by a public sector 'purchaser', as part of a PFI agreement, the terms of which impose obligations on the operator to carry out capital works on the premises, the lease may be deemed to have required the payment of a premium (see PIM1212 and ICTA88/S34 (2) and (3)).

In such circumstances the landlord is treated, for tax purposes, as becoming entitled to rent based on a proportion of the deemed premium (see PIM1205).

Where the payer of the deemed premium sublets, without receiving a premium, the amount of the deemed premium chargeable on the landlord is treated as if it was rent paid for the property. That is, it is deductible in computing the property income profit over the period of the sublease (see PIM2310 and ICTA88/S37). However, note the restriction in ICTA88/S37 (8).

A similar provision applies where the payer of the deemed premium occupies the land for the purposes of their trade (see BIM46255 and ICTA88/S87).

The relief is due even where the landlord is not chargeable on the deemed premium, e.g. because the landlord is exempt from tax (see PIM2310). However, in such cases it is necessary to ensure that an accurate valuation of the deemed premium is obtained (see PIM1232).