The Clause and schedule remove lease premium relief where a long lease is treated as a short lease for tax purposes. The measure will simplify the complex area of lease premiums; it will help businesses reduce the need for costly and long negotiations; and it will protect tax revenue.

In 2011, the Office of Tax Simplification recommended lease premium relief as an area that might benefit from simplification, but it acknowledged that the relief aspect of the regime could not be reviewed in isolation and that a review of the entire regime would be required. The preferred solution of the OTS involves following the commercial accounts for tax purposes. However, given the current possible changes in accounting for leases, such a review must be one for the future.

The Government announced at Budget 2012 that they would consult informally on the potential implications of amending a complex element of lease premium relief  rules concerning the tax treatment of long leases as shorter leases, which is one of the areas that the OTS review highlighted. Analysis shows that that part of the regime is used only where the landlord is tax-exempt, so the premium received is not taxed. Relief is consequently obtained, often after detailed valuation and legal considerations, on a payment for which there is no matching taxable receipt.

Current law taxes a lease premium payment, made on granting a lease of fewer than 50 years, on the recipient landlord and relieves it on the tenant where the tenant is a trader or a subsidiary landlord. The premium would otherwise be a capital payment for tax purposes. Where the payment relates to a lease of more than 50 years, the premium is not charged to tax as income. However, the premium for a lease of more than 50 years is also treated as a taxable receipt in certain circumstances where the lease is deemed to be shorter than 50 years, and that is where the complexity lies. As a result of the clause and schedule, relief will no longer be available to a trader or intermediate landlord who pays a lease premium or a lease that is deemed to be short only because of specific tax legislation. The measure will be effective for leases that are granted from the beginning of the tax or financial year.

The hon. Member for Newcastle upon Tyne North asked how many individuals companies would be affected by the changes. We estimate that the number is not significant, and the consultation responses do not suggest otherwise. The consultation respondees did not supply any figures, although they were asked that question. She asked what proportion of cases were abusive and were not covered by the existing rules. The existing rules do not cover cases where the recipient is tax exempt. There are no checks and balances if the recipient is exempt; there is no figure to match the relief against.

As for CIOT’s comment that the consultation paper was not easy to locate, officials sent a copy to the CIOT. On the issue of discrimination between tax-exempt and taxable landlords, the tenant is not affected by the status of the landlord. If the landlord is tax exempt, he is not charged on the sum received; if he is not tax exempt, there is no change for him. I hope that that provides some clarification.

The clause and schedule address a complex area of lease premiums. Although the time is not right for a wholesale review of the regime, as requested by the OTS, an interim change on a specific complexity is appropriate. The clause and schedule will simplify a complex area of tax, will help business reduce the need for costly and long negotiations, and will protect tax revenues.