Revenue Note for Guidance

CHAPTER 8 Taxation of rents and certain other payments

Overview

This Chapter provides for the charging to tax under Case V of Schedule D of income arising from rents in respect of land or premises situated in the State and receipts in respect of easements. The Chapter provides rules for the computation of Case V income (sections 97, 105 and 106) and for the treatment of certain premiums as rent (sections 98 and 98A). It also imposes a charge to tax on certain assignments of leases and on certain sales (sections 99 and 100), gives certain deductions/reliefs (sections 101, 102 and 103) and provides for the deduction of tax at source in respect of certain rents and other payments (section 104).

The provisions of section 1041 should be consulted where rents are payable to non-residents.

96 Interpretation (Chapter 8)

Summary

This section defines various terms used in the Chapter. It also provides rules for determining the duration of a lease.

Details

Definitions

(1) “easement” is given a substantially extended meaning to include any right, privilege or benefit in, over or derived from premises.

“lease” is also given an extended meaning to include an agreement for a lease and any tenancy, but does not include a mortgage. In relation to a given lease, “lessor” includes a successor in title of the person by whom the lease was granted, and “lessee” includes a successor in title of the person to whom the lease was granted.

“the person chargeable” is the person entitled to the profits/gains arising from rent in respect of premises and receipts in respect of easements. A debtor (within the meaning of the Personal Insolvency Act 2012) who transfers property to a person to hold in trust for the benefit of creditors under a Debt Settlement Arrangement or a Personal Insolvency Arrangement, in accordance with that Act, is treated as ‘the person chargeable’ in respect of rents and easements arising while the property is held in trust. This means, in effect, that the debtor is chargeable to tax under Case V in respect of such rents and easements.

“premises” is any lands, tenements or hereditaments in the State. The effect of this is to confine the scope of the Case V charge to property in the State. By virtue of section 12 of and the Schedule to, the Interpretation Act, 1937, the word “land” includes messuages, tenements, and hereditaments, houses and buildings, of any tenure.

“premium” includes any sum similar to a premium, whether payable to the immediate or a superior lessor or any person connected with such a person.

“rent” includes any payment in the nature of rent and also any contribution by the tenant to the cost of maintenance or repair of the premises for which the landlord is responsible.

“rented residential premises” is a residential premises in respect of which any person is entitled to a rent or receipt from any easements.

“residential premises” is a building or part of a building used or suitable for use as a dwelling together with any outoffice, yard, garden or other land appurtenant to or usually enjoyed with the building or part of the building.

Duration of a lease

(2)(a) The duration of a lease is normally the period for which it is granted. However, where the terms of a lease (including a lessor’s or lessee’s “break” clause or any other circumstance) render it unlikely that the lease will actually run its course and the premium is not substantially greater than it would have been if the term of the lease actually expired on the earlier likely date, then, in determining the duration of the lease, the lease is not to be treated as having been granted for a term longer than a term ending on that earlier date. Where, however, the terms of a lease include provision for its extension beyond a given date by notice given by the lessee, account may be taken, in determining the duration of the lease, of any circumstances making it likely that the lease will be so extended. Where a lessee or a person connected with the lessee is or may become entitled to a further lease, whenever commencing, of the same premises or of a part of the same premises, the term of the first lease may, in determining the duration of the lease, be taken as not expiring before the end of the term of the further lease.

Example 1

A grants a 51 year lease to B for a premium of €20,000 and a rent of €5,000 per annum for the first 10 years. Under the lease B is required to demolish and rebuild the premises at the end of the 10 years when he would be permitted to occupy the new premises at a full commercial rent. If B does not demolish and rebuild, the lease is forfeit. As it is unlikely that B would demolish and rebuild the premises and then pay a full commercial rent for it, the lease is to be treated as having been granted for 10 years.

If, however, the premium was €200,000, the rent €500 a year for the first 10 years and the terms of the lease allowed B to renew it for a further 41 years at a rent of €5,000 per annum, the premium is obviously substantially greater than it would have been for a 10 year lease. Thus, such a lease would not be treated as a 10 year lease.

Example 2

If A grants a one year lease of a factory to B for a premium of €1,000,000 and a rent of €100 and under the terms of the lease B has the right to extend his lease for a further 56 years without a premium but at an annual rent of €100 the duration of the lease would be treated as 57 years as B would be likely to exercise his right to the extension of the lease.

(2)(b) The above rules are applied by reference to all the facts known or ascertainable at the time the lease is granted or at the time when a contract for varying or waiving the lease is entered into. In applying the rules it is also to be assumed that all parties to a lease agreement acted at arm’s length. If, under the terms of the lease or in connection with the granting of the lease, benefits are conferred (other than vacant possession and beneficial occupation of the premises or the right to receive rent at a reasonable commercial rent for the premises) or payments were made which would not be expected in an arm’s length agreement without some other benefit having been conferred, then it is to be further assumed (unless it is shown that the benefits were not conferred or payments made so as to secure a tax advantage) that the benefits would not have been conferred nor the payments made had the lease been for a period ending on the earlier date. In other words, for the purposes of comparing the premium payable in the open market for the lease for the likely shorter period, no account is to be taken of any terms of the lease (or sub-lease) or any other arrangements the purpose of which was to inflate the open market premium.

A lease may include terms (a “break clause”) which would entitle the lessee, on a “break”, to —

a new lease on such favourable terms as to make the “break” likely,
a lease of more attractive property,
the right to a refund of the premium with or without interest.

Under this provision the onus of showing that any such abnormal elements were not introduced for the purpose of securing a tax advantage by manipulation of the “duration rules” falls on the person claiming the advantageous period.

Mortgages

(3) Where the estate or interest of a lessor in any premises is the subject of a mortgage and the mortgagee or a receiver appointed on the mortgagee’s behalf is in possession or in receipt of the rent from the premises, the mortgagee is chargeable to tax as if the mortgagee were the lessor. The mortgagee’s tax liability is computed as if the mortgagor was still in possession or no receiver had been appointed and as if the amount of the liability of the mortgagor was being computed.

Information

(4) Where an inspector has reason to believe that a person may be able to furnish information relevant to the ascertainment of the duration of a lease, the inspector may ask for such information to be supplied within 21 days or such longer period as the inspector may allow.

Relevant Date: Finance Act 2019