Finance (No. 2) Bill (HL Bill 156)

783AF Full relief: trade profits

(1) This section applies if—

(a) an individual qualifies for full relief for a tax year, and

(b) the individual’s relevant income for the tax year consists of or
5includes receipts of one or more relevant trades.

(2) The profits or losses of each such trade for the tax year are treated as
nil.

783AG Full relief: miscellaneous income

(1) This section applies if—

(a) 10an individual qualifies for full relief for a tax year, and

(b) the individual’s relevant income for the tax year consists of or
includes miscellaneous income.

(2) The amount of—

(a) the miscellaneous income arising in the tax year, less

(b) 15any expenses associated with that income,

is treated as nil.

Relief if relevant income exceeds trading allowance

783AH Partial relief: alternative calculation of profits: introduction

An individual qualifies for partial relief for a tax year if—

(a) 20the individual has relevant income for the tax year,

(b) the relevant income exceeds the individual’s trading
allowance for the tax year, and

(c) an election by the individual under section 783AM has effect
(election for partial relief).

783AI 25 Partial relief: alternative calculation of trade profits

(1) This section applies if—

(a) an individual qualifies for partial relief for a tax year, and

(b) the individual’s relevant income for the tax year consists of or
includes receipts of one or more relevant trades.

(2) 30The profits or losses for the tax year of each of the individual’s
relevant trades are given by taking the following steps—

Step 1

Calculate the total of all the amounts which would, apart from this
Chapter, be brought into account as a receipt in calculating the
35profits of the trade for the tax year.

Step 2

Subtract the deductible amount.

Step 3

Subtract from the amount given by step 2 any deduction for overlap
40profit allowed in calculating the profits of the trade for the tax year
under section 205 (deduction for overlap profit in final tax year) or
section 220 (deduction for overlap profit on change of accounting
date).

(3) Subject to section 783AK, the deductible amount is equal to the
individual’s trading allowance for the tax year.

(4) “Overlap profit” has the same meaning in this section as it has in
Chapter 15 of Part 2 (see sections 204 and 204A).

783AJ 5 Partial relief: alternative calculation of chargeable miscellaneous
income

(1) This section applies if—

(a) an individual qualifies for partial relief for a tax year, and

(b) the individual’s relevant income for the tax year consists of or
10includes miscellaneous income.

(2) The amount of miscellaneous income chargeable to income tax for
the tax year is—

(a) the miscellaneous income for the tax year, less

(b) the deductible amount.

(3) 15Subject to section 783AK, the deductible amount is equal to the
individual’s trading allowance for the tax year.

783AK Deductible amount: splitting of trading allowance

(1) This section applies where the individual’s relevant income for the
tax year includes—

(a) 20receipts of a relevant trade, and

(b) receipts of any other relevant trade or miscellaneous income
(or both).

(2) The references in section 783AI and (where it applies) section 783AJ
to the deductible amount are to amounts which, in total, equal the
25individual’s trading allowance for the tax year.

(3) The question of how to allocate the individual’s trading allowance
for the tax year for the purposes of subsection (2) is to be decided by
the individual, subject to subsections (4) and (5).

(4) The deductible amount in respect of a relevant trade must not be
30such that the amount given by step 2 of section 783AI(2) is negative.

(5) The deductible amount in respect of miscellaneous income must not
be such as to result in the individual making a loss in the transactions
giving rise to the miscellaneous income.

Elections

783AL 35 Election for full relief not to be given

(1) An individual may elect not to be given full relief for a tax year (see
sections 783AF and 783AG).

(2) An election must be made on or before the first anniversary of the
normal self-assessment filing date for the tax year for which the
40election is made.

783AM Election for partial relief

(1) An individual may elect for partial relief to be given for a tax year if
the individual’s relevant income for the tax year exceeds the
individual’s trading allowance for the tax year (see sections 783AI
5and 783AJ).

(2) An election must be made on or before the first anniversary of the
normal self-assessment filing date for the tax year for which the
election is made.

Exclusions from relief

783AN 10 Exclusion from relief: expenses deducted against rent-a-room
receipts

(1) No relief under this Chapter is given to an individual for a tax year
if—

(a) the individual qualifies for rent-a-room relief for the tax year,

(b) 15the individual has rent-a-room receipts mentioned in
subsection (2) for the tax year, and

(c) condition A or B is met.

(2) The rent-a-room receipts mentioned in subsection (1) are—

(a) rent-a-room receipts which would, apart from Chapter 1 of
20Part 7 (rent-a-room relief), be brought into account in
calculating the profits of a trade, or

(b) rent-a-room receipts which would, apart from Chapter 1 of
Part 7, be chargeable to income tax under Chapter 8 of Part 5
(income not otherwise charged).

(3) 25Condition A is that—

(a) the individual’s total rent-a-room amount for the tax year
does not exceed the individual’s limit for the tax year (see
section 783AR), and

(b) an election by the individual under section 799 has effect to
30disapply full rent-a-room relief for the tax year.

(4) Condition B is that—

(a) the individual’s total rent-a-room amount for the tax year
exceeds the individual’s limit for the tax year, and

(b) no election by the individual under section 800 has effect to
35apply the alternative method of calculating profits for the tax
year.

783AO Exclusion from relief: payments by employer

No relief under this Chapter is given to an individual for a tax year
if—

(a) 40the individual has relevant income for the tax year, and

(b) the income includes a payment made by, or on behalf of, a
person at a time when the individual is—

(i) an employee of the person, or

(ii) connected with an employee of the person.

783AP Exclusion from relief: payments by firm

No relief under this Chapter is given to an individual for a tax year
if—

(a) the individual has relevant income for the tax year, and

(b) 5the income includes a payment made by, or on behalf of, a
firm at a time when the individual is—

(i) a partner in the firm, or

(ii) connected with a partner in the firm.

783AQ Exclusion from relief: payments by close company

(1) 10No relief under this Chapter is given to an individual for a tax year
if—

(a) the individual has relevant income for the tax year, and

(b) the income includes a payment made by, or on behalf of, a
close company at a time when the individual is—

(i) 15a participator in the close company, or

(ii) an associate of a participator in the close company.

(2) In this section “associate” and “participator” have the same meanings
as in Part 10 of CTA 2010 (see sections 448 and 454).

Interpretation

783AR 20 Interpretation of this Chapter

In this Chapter—

(a) “rent-a-room relief”, “rent-a-room receipts” and “total rent-a-
room amount” have the same meanings as in Chapter 1 of
Part 7 (rent-a-room relief: see sections 784, 786 and 788), and

(b) 25references to “the individual’s limit” are to be construed in
accordance with section 789 (the individual’s limit for the
purposes of rent-a-room relief).

CHAPTER 2 Property allowance

Introduction

783B 30Relief under this Chapter

(1) This Chapter gives relief to an individual on certain income of a
relevant property business (see sections 783BA and 783BB).

(2) The form of relief depends on whether the individual’s relevant
property income exceeds the individual’s property allowance (see
35sections 783BC and 783BD).

(3) If the individual’s relevant property income does not exceed the
individual’s property allowance, the income is not charged to
income tax (unless the individual elects otherwise) (see sections
783BE and 783BF).

(4) If the individual’s relevant property income does exceed the
individual’s property allowance, the individual may elect for an
alternative method of calculating the income (see sections 783BG to
783BI).

(5) 5Any provision of this Chapter which gives relief is subject to sections
783BL to 783BP, which specify circumstances in which relief under
this Chapter is not given.

Basic definitions

783BA “Relevant property business” of an individual

(1) 10Subject to subsection (3), for the purposes of this Chapter an
individual’s property business is a “relevant property business” for
a tax year if the business is not a rent-a-room property business in
relation to the individual for the tax year.

(2) For the purposes of subsection (1) a property business is a “rent-a-
15room property business” in relation to an individual for a tax year
if—

(a) the individual qualifies for rent-a-room relief for the tax year,
and

(b) all the receipts which would, apart from Chapter 1 of Part 7
20(rent-a-room relief), be brought into account in calculating
the profits of the business, are rent-a-room receipts.

See section 783BQ for definitions relevant to this subsection.

(3) If an individual receives—

(a) property income distributions which are treated as profits of
25a UK property business by virtue of regulation 69Z18(1) or (2)
of the AIF Regulations (property AIF distributions: liability
to tax), or

(b) distributions which are treated as profits of a UK property
business by virtue of section 548(6) of CTA 2010 (REIT
30distributions: liability to tax),

that separate property business (see regulation 69Z18(6) of the AIF
Regulations and section 549(5) of CTA 2010) is not a relevant
property business of the individual.

(4) In subsection (3) “the AIF Regulations” means the Authorised
35Investment Funds (Tax) Regulations 2006 (S.I. 2006/964S.I. 2006/964).

783BB “Relievable receipts” of a property business

(1) For the purposes of this Chapter, the “relievable receipts” of an
individual’s relevant property business for a tax year are all the
amounts which would, apart from this Chapter, be brought into
40account as a receipt in calculating the profits of the business for the
tax year.

This is subject to subsections (2) and (3).

(2) If—

(a) the individual qualifies for rent-a-room relief for the tax year,
45and

(b) the individual has rent-a-room receipts for the tax year which
would, apart from Chapter 1 of Part 7, be brought into
account in calculating the profits of the property business,

the rent-a-room receipts are not relievable receipts of the business.

(3) 5Non-relievable balancing charges in respect of the property business
for the tax year are not relievable receipts of the business.

(4) In subsection (3) “non-relievable balancing charges”, in respect of a
property business for a tax year, means balancing charges falling to
be made for the tax year under Part 2 of CAA 2001 which do not
10relate to a business or transaction which is carried on, or entered into,
for the purpose of generating receipts which are relievable receipts
of the property business.

783BC The individual’s “relevant property income”

For the purposes of this Chapter, an individual’s “relevant property
15income” for a tax year is the relievable receipts for the tax year of the
individual’s relevant property businesses for the tax year.

783BD The individual’s property allowance

(1) For the purposes of this Chapter, an individual’s property allowance
for a tax year is £1,000.

(2) 20The Treasury may by regulations amend subsection (1) so as to
substitute a higher sum for the sum for the time being specified in
that subsection.

Relief if relevant property income does not exceed property allowance

783BE Full relief: introduction

25An individual qualifies for full relief for a tax year if—

(a) the individual has relevant property income for the tax year,

(b) the relevant property income does not exceed the
individual’s property allowance for the tax year, and

(c) no election by the individual under section 783BJ has effect
30(election for full relief not to be given).

783BF Full relief: property profits

(1) If an individual qualifies for full relief for a tax year, this section
applies in relation to the calculation of the profits of the individual’s
relevant property business for the tax year or, where the individual’s
35relevant property income for the tax year consists of the relievable
receipts of two relevant property businesses, the profits of each
property business for the tax year.

(2) The following are not brought into account—

(a) the relievable receipts of the property business for the tax
40year, and

(b) any expenses associated with those receipts.

Relief if relevant property income exceeds property allowance

783BG Partial relief: alternative calculation of property profits: introduction

An individual qualifies for partial relief for a tax year if—

(a) the individual has relevant property income for the tax year,

(b) 5the relevant property income exceeds the individual’s
property allowance for the tax year, and

(c) an election by the individual under section 783BK has effect
(election for partial relief).

783BH Partial relief: alternative calculation of property profits

(1) 10If an individual qualifies for partial relief for a tax year, this section
applies in relation to the calculation of the profits of the individual’s
relevant property business for the tax year or, where the individual’s
relevant property income for the tax year consists of the relievable
receipts of two relevant property businesses, the profits of each
15property business for the tax year.

(2) The relievable receipts of the property business for the tax year are
brought into account.

(3) No relevant expenses are brought into account.

(4) The deductible amount is brought into account.

(5) 20Subject to section 783BI, the deductible amount is equal to the
individual’s property allowance for the tax year.

(6) In subsection (3) “relevant expenses” means all the amounts—

(a) which would, apart from this section, be brought into
account as a deduction in calculating the profits of the
25business for the tax year, and

(b) which are associated with the relievable receipts.

783BI Deductible amount: splitting of property allowance

(1) This section applies where the individual’s relevant property income
for the tax year consists of the relievable receipts of two relevant
30property businesses.

(2) The references in section 783BH to the deductible amount are to
amounts which, in total, equal the individual’s property allowance
for the tax year.

(3) The question of how to allocate the individual’s property allowance
35for the tax year for the purposes of subsection (2) is to be decided by
the individual, subject to subsection (4).

(4) The deductible amount in respect of a relevant property business
must not be such as to result in a loss of the business.

Elections

783BJ 40 Election for full relief not to be given

(1) An individual may elect not to be given full relief for a tax year (see
section 783BF).

(2) An election must be made on or before the first anniversary of the
normal self-assessment filing date for the tax year for which the
election is made.

783BK Election for partial relief

(1) 5An individual may elect for partial relief to be given for a tax year if
the individual’s relevant property income for the tax year exceeds
the individual’s property allowance for the tax year (see section
783BH).

(2) An election must be made on or before the first anniversary of the
10normal self-assessment filing date for the tax year for which the
election is made.

Exclusions from relief

783BL Exclusion from relief: tax reduction under section 274A

No relief under this Chapter is given to an individual for a tax year
15if, in calculating the individual’s liability to income tax for the tax
year, a tax reduction under section 274A (property business: relief for
non-deductible costs of a dwelling-related loan) is applied at Step 6
of the calculation in section 23 of ITA 2007.

783BM Exclusion from relief: expenses deducted against rent-a-room
20receipts

(1) No relief under this Chapter is given to an individual for a tax year
if—

(a) the individual qualifies for rent-a-room relief for the tax year,

(b) the individual has rent-a-room receipts for the tax year which
25would, apart from Chapter 1 of Part 7 (rent-a-room relief), be
brought into account in calculating the profits of a property
business, and

(c) condition A or B is met.

(2) Condition A is that—

(a) 30the individual’s total rent-a-room amount for the tax year
does not exceed the individual’s limit for the tax year (see
section 783BQ), and

(b) an election by the individual under section 799 has effect to
disapply full rent-a-room relief for the tax year.

(3) 35Condition B is that—

(a) the individual’s total rent-a-room amount for the tax year
exceeds the individual’s limit for the tax year, and

(b) no election by the individual under section 800 has effect to
apply the alternative method of calculating profits for the tax
40year.

783BN Exclusion from relief: payments by employer

No relief under this Chapter is given to an individual for a tax year
if—

(a) the individual has relevant property income for the tax year,
45and

(b) the income includes a payment made by, or on behalf of, a
person at a time when the individual is—

(i) an employee of the person, or

(ii) connected with an employee of the person.

783BO 5 Exclusion from relief: payments by firm

No relief under this Chapter is given to an individual for a tax year
if—

(a) the individual has relevant property income for the tax year,
and

(b) 10the income includes a payment made by, or on behalf of, a
firm at a time when the individual is—

(i) a partner in the firm, or

(ii) connected with a partner in the firm.

783BP Exclusion from relief: payments by close company

(1) 15No relief under this Chapter is given to an individual for a tax year
if—

(a) the individual has relevant property income for the tax year,
and

(b) the income includes a payment made by, or on behalf of, a
20close company at a time when the individual is—

(i) a participator in the close company, or

(ii) an associate of a participator in the close company.

(2) In this section “associate” and “participator” have the same meanings
as in Part 10 of CTA 2010 (see sections 448 and 454).

25Interpretation

783BQ Interpretation of this Chapter

In this Chapter—

(a) “rent-a-room relief”, “rent-a-room receipts” and “total rent-a-
room amount” have the same meanings as in Chapter 1 of
30Part 7 (rent-a-room relief: see sections 784, 786 and 788), and

(b) references to “the individual’s limit” are to be construed in
accordance with section 789 (the individual’s limit for the
purposes of rent-a-room relief).””

Part 2 35Consequential amendments

ITTOIA 2005

2 ITTOIA 2005 is amended in accordance with paragraphs 3 to 11.

3 In section 1 (overview of Act), before paragraph (a) of subsection (5) insert—

“(za) provision about a trading allowance and property allowance
40(see Part 6A),”.”

4 In Chapter 2 of Part 2 (trading income: income taxed as trade profits), after

section 22 insert—

““Trading allowance

22A Trading allowance

(1) The rules for calculating the profits of a trade, profession or vocation
5carried on by an individual are subject to Chapter 1 of Part 6A
(trading allowance).

(2) That Chapter gives relief on relevant income and, where relief is
given, disallows most deductions under this Part (see, in particular,
sections 783AC, 783AF and 783AI).””

5 10In Chapter 15 of Part 2 (basis periods), after section 204 insert—

“204A Overlap profit and trading allowance under Chapter 1 of Part 6A

(1) This section makes provision about the amount of profit treated as
arising in an overlap period which falls within the basis period of a
trade for two tax years (“tax year A” and “tax year B”) where relief is
15given under Chapter 1 of Part 6A (trading allowance) in respect of
the trade for at least one of those tax years.

(2) The profit which arises in the overlap period is treated as nil if—

(a) the profits or losses of the trade for tax year A or tax year B
(or both) are treated as nil under section 783AF (full relief:
20trade profits), or

(b) in relation to tax year A or tax year B (or both)—

(i) section 783AI applies in calculating the profits or
losses of the trade (partial relief: alternative
calculation of trade profits), and

(ii) 25the deductible amount subtracted at step 2 of section
783AI(2) in relation to the trade is greater than or
equal to the non-adjusted overlap profit.

(3) Subsection (6) applies if conditions 1 and 2 are met.

(4) Condition 1 is that, in relation to either tax year A or tax year B—

(a) 30section 783AI applies in calculating the profits or losses of the
trade, and

(b) the deductible amount subtracted at step 2 of section
783AI(2) in relation to the trade is less than the non-adjusted
overlap profit.

(5) 35Condition 2 is that neither section 783AF nor section 783AI applies in
relation to the trade—

(a) where condition 1 is met in relation to tax year A, for tax year
B, or

(b) where condition 1 is met in relation to tax year B, for tax year
40A.

(6) The profit which arises in the overlap period is treated as equal to the
non-adjusted overlap profit less the deductible amount mentioned in
subsection (4)(b).