Revenue Note for Guidance

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Revenue Note for Guidance

345 Double rent allowance in respect of rent paid for certain business premises

Summary

A double deduction is allowed, as an expense in computing the profits or gains of a trade or profession, for rent paid on certain premises in designated areas (but not designated streets) or enterprise areas. The relief is also available in respect of rent paid for multi-storey car parks which qualify for capital allowances under section 344. However, in this case the qualifying period which is applicable for the relief is not that which is defined in section 344. Instead it is defined separately in this section.

Broadly, the relief is available only where a bona fide commercial lease is entered into in the qualifying period or within the period of 1 year commencing on the day after the end of that period and where the lessee is not connected with the lessor. The relief is available for a maximum rental period in respect of any one qualifying premises of 10 years taking into account all lease periods in respect of the premises under qualifying leases.

Details

Definitions

(1) “qualifying lease” is a lease in respect of a qualifying premises granted on bona fide commercial terms to a lessee who is not connected with the lessor or with any other person who is entitled to a rent in respect of the premises under that lease or any other lease. The lease must be entered into in the qualifying period or within the period of 1 year commencing on the day after the end of that period.

As regards enterprise areas, leases will be qualifying leases only if —

  • in the case of such areas described in an order referred to in section 340(1)(a), the leases are entered into before 31 July, 1999, and
  • in the case of such areas described in Schedule 7, the leases are entered into before 31 December, 1999.

As regards “airport” enterprise areas described in an order referred to in section 340(2)(i) – the leases cannot qualify.

“qualifying premises” is a building or structure which is let on bona fide commercial terms and which is —

  • an industrial building or structure within section 268(1)(a) (factory, mill or similar premises or laboratory for analysing minerals) the site of which is wholly within a designated area and in respect of which capital expenditure is incurred in the qualifying period which qualifies for accelerated capital allowances by virtue of section 341,
  • a commercial premises the site of which is wholly within a designated area and in respect of which capital expenditure is incurred in the qualifying period which qualifies for the scheme of capital allowances provided by section 342,
  • a building or structure the site of which is wholly within an enterprise area and in respect of which capital expenditure is incurred in the qualifying period which qualifies for the scheme of capital allowances provided by section 343,
  • an industrial building or structure within section 268(1)(d) (hotels) the site of which is wholly within a designated area and in respect of which capital expenditure is incurred in the qualifying period which but for subsection (6) (which provides that capital allowances must be disclaimed if the double rent allowance is to apply in the case of a hotel) would qualify for capital allowances, or
  • a qualifying multi-storey car park which qualifies for the scheme of capital allowances provided by section 344.

However, in any case where the title to capital allowances is based on expenditure incurred on refurbishment, the building, structure or premises is not treated as a qualifying premises unless the refurbishment expenditure amounts to not less than 10 per cent of the market value (defined in section 339) of the building, structure or premises before its refurbishment.

Multi-storey car parks

(1A) As regards multi-storey car parks, “qualifying period”, for the purposes of section 345, is the period from 1 August, 1994 to—

  • 31 July, 1997, or
  • 30 September 1998 where the local authority certifies that 15 per cent of the total cost of the project has been incurred before 1 July, 1998. This provision had the effect of providing until 30 September 1999 for entering into a qualifying lease for double rent allowance purposes in the case of such a project. The date of 30 September 1999 applies as a qualifying lease may be granted up to one year after the end of the qualifying period.

Duration of relief

(2) The maximum period for which the double rent allowance is available is 10 years in respect of any one premises. If a person enters into a qualifying lease in respect of a qualifying premises, all previous periods for which rent was payable in respect of the premises under a qualifying lease are taken into account in establishing the period of entitlement to the double allowance. Thus, for example, if a previous tenant had claimed a double rent allowance for a period of 4 years in respect of rent paid for the premises, the maximum period for which the double rent allowance would be available to a new tenant would be 6 years.

The relief

(3) A person who is carrying on a trade or profession in a qualifying premises under a qualifying lease and who is entitled, in computing the profits or gains of the trade or profession, to a deduction for rent paid in respect of the premises for any period for which the relief under this section is available (see subsection (2)) is entitled to a further equivalent deduction, thereby giving a double allowance. In the case of a qualifying lease granted on or after 21 April, 1997, the double allowance is not given where the rent is payable to a connected person.

Prevention of abuse

(4) A measure is included to counter possible abuse of the relief through cross-leasing between connected persons. Entitlement to the double rent allowance is conditional on both the claimant and any person connected with the claimant not having an interest in a premises which is itself leased and qualifies for a double rent allowance. This condition does not apply where the claimant can show that the renting by him/her of the premises which is the subject of his/her claim for the double rent allowance was not undertaken for the sole or main benefit of obtaining that allowance.

Relief in the case of hotels

(5)(a) A hotel is not a qualifying premises for the purposes of the double rent allowance unless the person who would be entitled to claim the capital allowances in respect of the expenditure incurred in the qualifying period on the construction or refurbishment of the hotel makes an election in writing to the inspector to disclaim all such allowances in respect of that expenditure.

(5)(b) Such an election must be included in the return of income required to be made by the person concerned for the first year of assessment or, in the case of a company, accounting period for which capital allowances would otherwise have been available in respect of that expenditure.

(5)(c) An election to disclaim the capital allowances is irrevocable.

(5)(d) A person who has made such an election must furnish a copy of that election to any tenant to whom a qualifying lease in respect of the qualifying premises is granted. The tenant, in turn, must include the copy in the return of income required to be made by the tenant for the year of assessment or, in the case of a company, accounting period in which rent is first payable by the tenant under the qualifying lease.

(6) Where a person who has incurred capital expenditure in the qualifying period on the construction or refurbishment of a hotel makes an election to disclaim the capital allowances in respect of that expenditure—

  • no capital allowances will be made to that person in respect of that expenditure,
  • on the occurrence of any event in relation to the hotel which triggers a balancing allowance or charge, the residue of that expenditure will be deemed to be nil (this ensures that successors in title to the hotel will have no entitlement to capital allowances in respect of that expenditure), and
  • section 279 will not apply in relation to any person who purchases the relevant interest in the hotel (this puts beyond doubt that any person who buys the hotel unused or within one year of it commencing to be used will also have no entitlement to capital allowances, despite that the person who incurred the capital expenditure in the qualifying period on the construction or refurbishment of the hotel would have disclaimed the capital allowances in respect of that expenditure).

(7) In determining title to the double rent allowance, and the amount of capital allowances to be disclaimed, in respect of hotels, only the amount of capital expenditure properly attributable to work on the construction or refurbishment of the hotel which is carried out during the qualifying period will be treated as having been incurred in that period. This provision operates despite any other provision of the Tax Acts as to the time when capital expenditure is or is deemed to be incurred.

Finance leases

(8) A finance lease is not treated as a qualifying lease for the purposes of the double rent allowance. A lease is a finance lease if, at the inception of the lease, the aggregate of the current value of the minimum lease payments (including any initial payment, but excluding any payment for which the lessor will be accountable to the lessee) payable by the lessee in relation to the lease amounts to 90 per cent or more of the fair value (that is, open market value less any grants receivable towards the cost of purchase of the premises) of the premises. A lease is also a finance lease if, in substance, it provides the lessee with the risks and benefits of ownership of the premises other than legal title to the premises.

Relevant Date: Finance Act 2019