The Non-resident Landlords Scheme - HM Revenue & Customs

Section 277
ITTOIA 2005
Premiums
Section 42 of the Landlord & Tenant Act 1987 requires that
where the tenants of two or more dwellings contribute to the
same costs by the payment of service charges, those charges
shall be held upon trust for the contributing tenants. This means
that the charges are not, at that stage, the income of the landlord
and, as such, are not rental income for the purposes of the NRL
Scheme. But once sums are paid out by the trustee (usually the
letting agent) for service charges, then agents should treat those
sums as the rental income of the landlord and consider whether
they are ‘deductible expenses’ or not.
9.8 Lump sums received up front for the grant of a lease of 50
years or less are liable to income tax. Such receipts are
generally called ‘premiums’. They are treated wholly or partly
as rental income.
9.9 The amount treated as rental income is calculated on a sliding
scale that depends upon the length of the lease. The rule is that
the amount treated as rental income is the premium reduced by 2
per cent of the premium for each complete year of the lease after
the first. Thus:
• the full amount of the premium is treated as rental
income where the lease is for less than two years;
• 98 per cent of the premium is treated as rental income if
the lease is for two years or more but for less than three
years;
• 96 per cent of the premium is treated as rental income if
the lease is for three years or more but for less than four
years;
• and so on until none of the premium is treated as rental
income if the lease is for more than 50 years.
9.10 More information is provided about premiums in the Property
Income Manual (see paragraph 9.4 above).
Income which is not rental income
9.11 There are certain receipts arising out of the use of land that are
not rental income. These include:
• income from woodlands managed on a commercial
basis;
• income from the types of concerns listed below
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Non-resident Landlords Scheme: Guidance Notes (01/12) 44