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Lease Premium

My business has just taken out a 10 year lease on a new factory. We have been charged a lease premium of £12,500. Could you please advise me what a lease premium is and how it will be treated for my accounts and tax?

A lease premium is a non-refundable lump sum paid by the tenant (lessee) to the owner (grantor) upon signing a tenancy agreement. 

As the lease is under 50 years, it will be classed as a short lease.

In the accounts, the premium will be capitalised as a leasehold asset and amortised over the term of the lease. The amortisation is then added back for tax purposes. 

To calculate the actual relief available for tax purposes, first find the amount of the premium assessable on the grantor to capital gains tax using a simple formula:

Premium x 2% (duration (in years) - 1) = Amount assessable on grantor

This figure is taken away from the premium leaving the amount assessable to income tax on the grantor as property income. This is also the amount allowable for tax for the lessee, using the straight line basis over the number of years of the lease.


With regard 



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