ExpertMedium2 marksMultiple Choice
ACCA · Question 02 · Income tax and NIC liabilities
Section A
AgriCorp Ltd granted a 21-year lease on a piece of agricultural land to a tenant farmer. AgriCorp Ltd received a premium of £60,000 upon the grant of the lease, in addition to annual rent.
What amount of the premium will be assessed as property income for AgriCorp Ltd in the year the lease is granted?
Section A
AgriCorp Ltd granted a 21-year lease on a piece of agricultural land to a tenant farmer. AgriCorp Ltd received a premium of £60,000 upon the grant of the lease, in addition to annual rent.
What amount of the premium will be assessed as property income for AgriCorp Ltd in the year the lease is granted?
Answer options:
A.
£60,000
B.
£36,000
C.
£24,000
D.
£2,857
How to approach this question
Use the property income premium formula: P x (51 - n) / 50, where P is the premium and n is the number of years of the lease.
Full Answer
B.£36,000✓ Correct
When a premium is received for the grant of a short lease (50 years or less), a portion is treated as property income. The formula is Premium x (51 - n) / 50, where n is the duration of the lease. Here: £60,000 x (51 - 21) / 50 = £60,000 x 30 / 50 = £36,000.
Common mistakes
Calculating the capital gains element instead of the property income element.
Practice the full ACCA TX — Taxation Practice Exam 2
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