Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.
131

Additional calculation rule for reducing certain receipts
287
Circumstances in which additional calculation rule applies
(1)
The rule in section 288 (the additional calculation rule) applies in relation to the
calculation of receipts under—
section 277 (lease premiums),
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section 279 (sums payable instead of rent),
section 280 (sums payable for surrender of lease),
section 281 (sums payable for variation or waiver of term of lease), or
section 282 (assignments for profit of lease granted at undervalue).
(2)
It applies if conditions A and B are met.
10
(3)
Condition A is that—
(a)
in the case of a receipt under section 277, 279 or 280, the lease is granted
out of a taxed lease,
(b)
in the case of a receipt under section 281, the lease was granted out of a
taxed lease, and
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(c)
in the case of a receipt under section 282, the assignment is of a taxed
lease.
(4)
A lease is a “taxed lease” for the purposes of this Chapter if—
(a)
there is a receipt under any of sections 277 to 282 in respect of the lease,
or
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(b)
there would be such a receipt, but for the operation of the additional
calculation rule in the calculation of its amount.

In this Chapter such a receipt is referred to as a “taxed receipt”.
(5)
Condition B is that the taxed receipt, or if there is more than one, at least one of them,
has an unused amount.
25
(6)
See section 290 for an explanation of when a taxed receipt has an “unused
amount”.
288
The additional calculation rule
(1)
The rule in this section applies if the conditions mentioned in section 287 are
met.
30
(2)
The additional calculation rule is that the amount given by the formula in
section 277, 279, 280, 281 or 282 must be reduced by the amount calculated in
accordance with this section in order to give the amount of the receipt under
calculation.
(3)
The amount of the reduction is—
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(a)
if there is one taxed receipt which has an unused amount, the basic
relieving amount by reference to that receipt, and
(b)
if there is more than one taxed receipt which has an unused amount, the
total of the basic relieving amounts by reference to each receipt,

adjusted, if necessary, in the light of section 289(5) (reduction not to exceed
40
amount being reduced).

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.
132

(4)
The basic relieving amount by reference to a taxed receipt is given by the
formula—

where—
A is the unreduced amount of the taxed receipt (which is, generally, the
amount given by the formula in section 277, 279, 280, 281 or 282, but see
5
section 290(2) to (4)),
LRP is the receipt period of the receipt under calculation, and
TRP is the receipt period of the taxed receipt.
(5)
But the basic relieving amount is different if section 289(2) or (4) applies
(certain special cases).
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(6)
For the purposes of this Chapter, the “receipt period” of a receipt is—
(a)
in the case of a receipt under section 277 or 280, the effective duration
of the lease,
(b)
in the case of a receipt under section 279, the period in relation to which
the sum payable instead of rent is payable,
15
(c)
in the case of a receipt under section 281, the period for which the
variation or waiver has effect, and
(d)
in the case of a receipt under section 282, the effective duration of the
lease remaining at the date of the assignment.
289
The additional calculation rule: special cases
20
(1)
This section explains how section 288 operates in some special cases.
(2)
If—
(a)
the receipt under calculation is under any of sections 277 to 281, and
(b)
the lease does not extend to the whole of the premises subject to the
taxed lease,
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the basic relieving amount by reference to a taxed receipt is calculated by
multiplying the amount given by the formula in subsection (4) of section 288
by the fraction of those premises which is subject to the lease.
(3)
This fraction is calculated on a just and reasonable basis.
(4)
If the basic relieving amount given by section 288(4) or subsection (2) above by
30
reference to a taxed receipt would otherwise exceed the unused amount of the taxed
receipt, the basic relieving amount is the unused amount.
(5)
If the amount of the reduction under section 288 would otherwise exceed the
amount given, in respect of the receipt under calculation, by the formula in
section 277, 279, 280, 281 or 282, the amount of the reduction is equal to the
35
amount given by the formula.
290
Meaning of “unused amount” and “unreduced amount”
(1)
For the purposes of this Chapter, a taxed receipt has an “unused amount” if the
unreduced amount exceeds the total of the reductions and deductions referred to in
subsection (5).
40

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.
133

(2)
In this Chapter the “unreduced amount” of a taxed receipt is the amount given,
in respect of the taxed receipt, by the formula in section 277, 279, 280, 281 or
282.
(3)
Subsection (4) applies to a taxed receipt under section 277 (lease premiums) as
a result of section 278 (amount treated as lease premium where work required).
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(4)
If the obligation to carry out work included the carrying out of work which
gives, or will give, rise to qualifying expenditure under CAA 2001, the
unreduced amount of the taxed receipt is calculated as if the obligation had not
included the carrying out of that work.
(5)
The reductions and deductions mentioned in subsection (1) are—
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(a)
the reductions under section 288 by reference to the taxed receipt,
(b)
the deductions allowed in calculating the profits of a trade, profession or
vocation for expenses under section 61 (tenant under taxed lease who uses land
in connection with trade treated as incurring expenses) by reference to the
taxed receipt, and
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(c)
the deductions allowed in calculating the profits of a property business for
expenses under section 292 (tenant under taxed lease who uses premises for
purposes of property business treated as incurring expenses) by reference to the
taxed receipt.
(6)
For the purposes of this Chapter references to a reduction under section 288 by
20
reference to a taxed receipt are to a reduction under that section so far as
attributable to the taxed receipt.
Deductions in relation to certain receipts
291
Deductions for expenses under section 292
(1)
Section 292 (tenants under taxed leases treated as incurring expenses) applies
25
in calculating the profits of a property business carried on by the tenant under
a taxed lease for the purpose of making deductions for the expenses of the
property business.
(2)
A deduction is allowed for an expense under section 292 for a qualifying day
on which the whole or part of the premises subject to the taxed lease is—
30
(a)
occupied by the tenant for the purpose of carrying on the property
business, or
(b)
sublet.
(3)
But any deduction for an expense under section 292 is subject to the application
of any provision of Chapter 4 of Part 2 (as applied to property businesses by
35
section 272).
(4)
The amount of the deduction for an expense under section 292 for a qualifying day by
reference to a taxed receipt may be reduced in order to comply with section 295 (limit
on reductions and deductions).
(5)
For the meaning of expressions used in this section, see in particular—
40
section 287(4) (“taxed lease”), and
section 287(4) (“taxed receipt”).

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.
134

292
Tenants under taxed leases treated as incurring expenses
(1)
The tenant under a taxed lease is treated as incurring an expense of a revenue
nature in respect of the premises subject to the taxed lease for each qualifying
day.
(2)
If there is more than one taxed receipt, this section applies separately in
5
relation to each of them.
(3)
A day is a “qualifying day”, in relation to a taxed receipt, if it falls within the
receipt period of the taxed receipt.
(4)
The amount of the expense for the qualifying day by reference to the taxed
receipt is given by the formula—
10

where—
A is the unreduced amount of the taxed receipt, and
TRP is the number of days in the receipt period of the taxed receipt.
(5)
This section is subject to sections 293 and 294 (restrictions on expenses where
the additional calculation rule is relevant).
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(6)
For the meaning of expressions used in this section, see in particular—
section 288(6) (“receipt period”), and
section 290(2) to (4) (“unreduced amount”).
293
Restrictions on section 292 expenses: the additional calculation rule
(1)
This section applies if, in calculating the amount of a receipt (“the lease
20
premium receipt”), there is a reduction under section 288 (the additional
calculation rule) by reference to the taxed receipt.
(2)
Subsections (3) to (5) provide for the application of section 292 for a qualifying
day that falls within the receipt period of the lease premium receipt.
(3)
The tenant under the taxed lease is treated as incurring an expense under
25
section 292 for the qualifying day by reference to the taxed receipt only if the
daily amount of the taxed receipt exceeds the daily reduction of the lease
premium receipt.
(4)
If the condition in subsection (3) is met, the amount of the expense under
section 292 for the qualifying day by reference to the taxed receipt is equal to
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that excess.
(5)
If the qualifying day falls within the receipt periods of more than one lease premium
receipt, the reference in subsection (3) to the daily reduction of the lease premium
receipt is to be read as a reference to the total of the daily reductions of each of the lease
premium receipts whose receipt period includes the qualifying day.
35
(6)
In this section—
the “daily amount” of the taxed receipt is given by the formula—

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.
135

where—
A is the unreduced amount of the taxed receipt (see section 290(2) to
(4)), and
TRP is the number of days in the receipt period of the taxed receipt, and

5
the “daily reduction” of a lease premium receipt is given by the formula—
where—
AR is the reduction under section 288 by reference to the taxed receipt
(see section 290(6)), and
RRP is the number of days in the receipt period of the lease premium
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receipt.
(7)
Section 294 explains how this section operates if the lease premium receipt is
in respect of a lease that has been granted out of the taxed lease and does not
extend to the whole of the premises subject to the taxed lease.
294
Restrictions on section 292 expenses: lease of part of premises
15
(1)
This section applies if—
(a)
a lease has been granted out of the taxed lease,
(b)
the lease does not extend to the whole of the premises subject to the
taxed lease, and
(c)
in calculating the amount of a receipt under any of sections 277 to 281
20
(receipts in respect of lease premiums or sums payable instead of rent,
for surrender of lease or for variation or waiver of term of lease) in
respect of the lease (“the lease premium receipt”), there is a reduction
under section 288 by reference to the taxed receipt.
(2)
Subsections (3) to (5) apply for a qualifying day that falls within the receipt
25
period of the lease premium receipt.
(3)
Sections 292 and 293 apply separately in relation to the part of the premises
subject to the lease and to the remainder of the premises.
(4)
If—
(a)
more than one lease that does not extend to the whole of the premises subject to
30
the taxed lease has been granted out of the taxed lease, and
(b)
the qualifying day falls within the receipt period of two or more lease premium
receipts that relate to different leases,

sections 292 and 293 apply separately in relation to each part of the premises subject to
a lease to which such a receipt relates and to the remainder of the premises.
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(5)
Where sections 292 and 293 apply in relation to a part of the premises, A
becomes the amount calculated by multiplying the unreduced amount of the
taxed receipt by the fraction of the premises constituted by the part.
(6)
This fraction is calculated on a just and reasonable basis.