Changes to the tax treatment of commercial lease payments

man leaning over counter discussing commercial lease paymentsOn 1st April 2013 proposed changes will come into effect concerning commercial lease payments. Whether you are starting or ending such an arrangement over the next few months we would advise you to contact us to discuss potential implications in tax treatments.

Lease inducement payments. When there is a glut on the market of available lease tenancies it is a standard practice for commercial landlords to pay lump sums to tenants as an incentive to lease. At the moment these payments are tax deductible for the landlord and treated as non-taxable receipts or capital for the tenant.

However, the changes proposed will see the tenant having the lease inducement payment treated as taxable income being allocated proportionally over the total lease term. Landlords will likewise spread the amount over the term of the lease.

Lease surrender payments. Conversely a lump sum payment from tenant to landlord to end a lease term early will now be tax deductible for the tenant whereas it was previously non-deductible. In general these payments are taxable to the landlord.

Both of these proposed changes are only applicable to leases commencing on or after the 1st April 2013. Basically both landlords and tenants will now be taxed similarly for these types of payments and receipts.