Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

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.
136

Limit on effect of additional calculation rule and deductions
295
Limit on reductions and deductions
(1)
The total of—
(a)
the reductions under section 288 by reference to a taxed receipt, and
(b)
the deductions allowed in calculating the profits of a property business for
5
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,

must not exceed the amount referred to in subsection (2).
(2)
The amount mentioned in subsection (1) is the difference between—
10
(a)
the unreduced amount of the taxed receipt, and
(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.
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Relationship with ICTA
296
Corporation tax receipts treated as taxed receipts
(1)
This section applies if in respect of a lease—
(a)
there is a receipt of a Schedule A business or an overseas property
business (within the meaning of section 70A(4) of ICTA) as a result of
20
section 34 or 35 of ICTA (treatment of premiums etc. as rent and
assignments for profit of lease granted at an undervalue) for an
accounting period ending after 5th April 2005, or
(b)
there would be such a receipt, but for the operation of section 37(2) or
(3) of ICTA (reductions in certain receipts under section 34 or 35 of
25
ICTA).

In this Chapter such a receipt is referred to as a “corporation tax receipt”.
(2)
For the purposes of this Chapter—
(a)
the lease is treated as a taxed lease, and
(b)
the corporation tax receipt is treated as a taxed receipt.
30
(3)
For the purposes of this Chapter, the “receipt period” of a taxed receipt which
is a corporation tax receipt is—
(a)
in the case of a corporation tax receipt as a result of section 34 of ICTA,
the period treated in calculating the amount of the receipt as being the
duration of the lease, and
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(b)
in the case of a corporation tax receipt as a result of section 35 of ICTA,
the period treated in calculating the amount of the receipt as being the
duration of the lease remaining at the date of the assignment.
(4)
For the purposes of this Chapter the “unreduced amount” of a taxed receipt
which is a corporation tax receipt is the amount of the corporation tax receipt
40
as a result of section 34 or 35 of ICTA, before the operation of section 37(2) or
(3) of ICTA.

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.
137

(5)
Subsection (6) applies to a taxed receipt which is a corporation tax receipt
arising as a result of section 34(2) of ICTA (obligation on tenant to carry out
work under lease).
(6)
If the obligation to carry out work includes the carrying out of work which
gives, or will give, rise to qualifying expenditure under CAA 2001, the
5
unreduced amount of the taxed receipt is calculated as if the obligation had not
included the carrying out of that work.
297
Taking account of reductions in corporation tax receipts
(1)
This section applies if—
(a)
in calculating the amount of a corporation tax receipt, there is a
10
reduction under section 37(2) or (3) of ICTA by reference to the amount
chargeable on the superior interest for the purposes of that section, and
(b)
the amount chargeable on the superior interest is the taxed receipt for
the purposes of this Chapter.
(2)
For the purposes of this Chapter references to a reduction under section 37(2)
15
or (3) of ICTA in a corporation tax receipt by reference to the amount
chargeable on the superior interest are to the difference between—
(a)
the amount of the corporation tax receipt before the operation of section
37(2) or (3) of ICTA, and
(b)
the amount of the receipt after the operation of that subsection,
20

so far as attributable to the amount chargeable on the superior interest for the
purposes of section 37 of ICTA.
(3)
In sections 290(5)(a) (meaning of “unused amount”) and 295(1)(a) (limit on
reductions and deductions) references to reductions under section 288 by
reference to the taxed receipt include references to reductions under section
25
37(2) or (3) of ICTA in corporation tax receipts by reference to the amount
chargeable on the superior interest.
(4)
Sections 292 to 294 apply as follows—
(a)
the corporation tax receipt is treated as if it were a lease premium
receipt for the purposes of sections 293 and 294,
30
(b)
references in those sections to the reduction under section 288 by
reference to the taxed receipt are, in relation to the corporation tax
receipt, to the reduction under section 37(2) or (3) of ICTA by reference
to the amount chargeable on the superior interest, and
(c)
for the purposes of those sections the receipt period of the corporation
35
tax receipt is—
(i)
in the case of a corporation tax receipt as a result of section 34 of
ICTA, the period treated in calculating the amount of the receipt
as being the duration of the lease, and
(ii)
in the case of a corporation tax receipt as a result of section 35 of
40
ICTA, the period treated in calculating the amount of the receipt
as being the duration of the lease remaining at the date of the
assignment.
298
Taking account of deductions for rent as a result of section 37(4) or 87(2) of
ICTA
45
(1)
Subsection (2) applies if—

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.
138

(a)
in calculating the profits of a trade, profession or vocation for an
accounting period ending after 5th April 2005, a company is treated as
paying rent under section 87(2) of ICTA by reference to the amount
chargeable for the purposes of that section, and
(b)
the amount chargeable is the taxed receipt for the purposes of this
5
Chapter.
(2)
References in sections 290(5)(b) and 295(2)(b) to the deductions allowed for
expenses under section 61 by reference to the taxed receipt include references
to the deductions allowed in calculating the profits of the trade, profession or
vocation for the rent that the company is treated as paying under section 87(2)
10
of ICTA by reference to the amount chargeable.
(3)
Subsection (4) applies if—
(a)
in calculating the profits of a Schedule A business or an overseas
property business (within the meaning of section 70A(4) of ICTA) for
an accounting period ending after 5th April 2005, a company is treated
15
as paying rent as a result of section 37(4) of ICTA by reference to the
amount chargeable on the superior interest for the purposes of that
section, and
(b)
the amount chargeable on the superior interest is the taxed receipt for
the purposes of this Chapter.
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(4)
References in sections 290(5)(c) and 295(1)(b) to the deductions allowed for
expenses under section 292 by reference to the taxed receipt include references
to the deductions allowed in calculating the profits of the Schedule A business
or overseas property business (within the meaning of section 70A(4) of ICTA)
for the rent that the company is treated as paying as a result of section 37(4) of
25
ICTA by reference to the amount chargeable on the superior interest.
Certain administrative provisions
299
Payment of tax by instalments
(1)
This section applies if—
(a)
there is a receipt under section 277 (lease premiums) in respect of a
30
premium which is payable by instalments, or
(b)
there is a receipt under any of sections 279 to 281 (sums payable instead
of rent, for surrender of lease or for variation or waiver of term of lease)
in respect of a sum which is payable by instalments.
(2)
The person who is liable to pay tax by reference to the receipt may choose to
35
pay the tax by such instalments as the Inland Revenue may allow.
(3)
The period over which the instalments of tax must be paid—
(a)
must be 8 years or less, and
(b)
must end before, or at the same time as, the time when the last of the
instalments mentioned in subsection (1)(a) or (b) is payable.
40
300
Statement of accuracy for purposes of section 282
(1)
This section applies if any of the persons mentioned in subsection (3) provides
the Inland Revenue with a statement showing—
(a)
whether or not there is, or may be, a receipt under section 282
(assignments for profit of lease granted at undervalue), and
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Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.
139

(b)
the amount of any receipt.
(2)
The Inland Revenue must certify the accuracy of the statement, if satisfied as to
its accuracy.
(3)
The persons referred to in subsection (1) are—
(a)
the landlord who granted the lease,
5
(b)
a person who assigned it, or
(c)
a person to whom it was assigned.
301
Claim for repayment of tax payable by virtue of section 284
(1)
This section applies if—
(a)
there is a receipt under section 284 (sales with right to reconveyance),
10
and
(b)
the date on which the estate or interest would fall to be reconveyed was
not fixed under the terms of the sale.
(2)
If the seller makes a claim, the seller must be repaid the amount by which A
exceeds B, where—
15
A is the amount of tax paid by the seller which was payable by virtue of
section 284, and
B is the amount of tax that would have been so payable if the date on
which the estate or interest was reconveyed had been taken as the date
fixed by the terms of the sale.
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(3)
The claim must be made within 6 years after the day on which the estate or
interest was reconveyed.
302
Claim for repayment of tax payable by virtue of section 285
(1)
This section applies if—
(a)
there is a receipt under section 285 (sale and leaseback transactions),
25
and
(b)
the date for the grant of the lease was not fixed under the terms of the
sale.
(2)
If the seller makes a claim, the seller must be repaid the amount by which A
exceeds B, where—
30
A is the amount of tax paid by the seller which was payable by virtue of
section 285, and
B is the amount of tax that would have been so payable if the date on
which the lease was granted had been taken as the date fixed by the
terms of the sale.
35
(3)
The claim must be made within 6 years after the day on which the lease was
granted.
Effective duration of lease
303
Rules for determining effective duration of lease
(1)
The following rules apply for determining the effective duration of a lease for
40
the purposes of this Chapter.

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.
140

Rule 1: A lease is not to be treated as having been granted for a term longer
than one ending on a date before the end of the term for which the lease
was granted if—
(a)
the terms of the lease or any other circumstances make it
unlikely that the lease will continue beyond that date, and
5
(b)
the premium was not substantially greater than it would have
been had the term been one ending on that date.

Rule 2: If the terms of the lease include provision for the extension of the
lease beyond a given date by notice given by the tenant, account may
10
be taken of any circumstances making it likely that the lease will be so
extended.

Rule 3: If the tenant or a person connected with the tenant is, or may
become, entitled to a further lease or the grant of a further lease
15
(whenever commencing)—
(a)
of the same premises, or
(b)
of premises including the whole or part of the same premises,
the term of the lease may be treated as continuing until the end of the
term of the further lease.
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(2)
The rules are to be applied in accordance with section 304.
(3)
In this section and section 304, in relation to Scotland, “term”, where referring
to the duration of a lease, means period.
304
Applying the rules in section 303
(1)
The rules in section 303 apply by reference to the facts known or
25
ascertainable—
(a)
at the time of the grant of the lease, or
(b)
if the determination is for the purposes of section 281 (sums payable for
variation or waiver of term of lease), at the time when the contract for
the variation or waiver is entered into.
30
(2)
In applying those rules, it is assumed that all parties concerned, whatever their
relationship, act as if they were at arm’s length.
(3)
Subsection (5) applies if—
(a)
special benefits were conferred by the lease or in connection with its
grant, or
35
(b)
payments were made which one would not expect to be made by
parties acting at arm’s length unless such benefits had been conferred.
(4)
But subsection (5) does not apply if it can be shown that the special benefits
were not conferred nor the payments made for the purpose of securing a tax
advantage in the application of this Chapter or sections 34 to 39 of ICTA
40
(premiums, leases at undervalue etc.).
(5)
In applying rule 1 in section 303, it is assumed that the special benefits would
not have been conferred nor the payments made if the lease had been granted
for a term ending on the date mentioned in that rule.
(6)
In this section “special benefits” means benefits other than—
45
(a)
vacant possession and beneficial occupation of the premises, or

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc.
141

(b)
the right to receive rent at a reasonable commercial rate in respect of the
premises.
305
Information about effective duration of lease
(1)
This section applies if the Inland Revenue have reason to believe that a person
has information relevant to the determination of the effective duration of a
5
lease.
(2)
The Inland Revenue may by notice require the person to provide such
information on the matters specified in the notice as is in the person’s
possession.
(3)
The information must be provided within a time specified in the notice.
10
(4)
In relation to anything done by a solicitor on behalf of a client, the solicitor is
required only to—
(a)
state that the solicitor was acting on behalf of a client, and
(b)
provide the name and address of the client.
Other interpretative provisions
15
306
Provisions about premiums
(1)
For the purposes of this Chapter, the presumption is that a sum paid on or in
connection with the granting of a tenancy has been paid by way of premium.
(2)
This does not apply if the sum is rent.
(3)
This also does not apply so far as other sufficient consideration for the payment
20
can be shown to have been given.
(4)
In this section “sum” includes the value of any consideration.
(5)
Where rule 3 in section 303 (rules for determining effective duration of lease)
applies, the premium, or an appropriate part of it, payable for or in connection
with either lease mentioned in that rule may be treated for the purposes of this
25
Chapter as having been required under the other.
307
Interpretation
(1)
In this Chapter “premium” includes any similar sum payable to the immediate
or a superior landlord or to a person connected with such a person.
(2)
In subsection (1) “sum” includes the value of any consideration.
30
(3)
In the application of this Chapter to Scotland—
“premium” includes, in particular, a grassum payable to the landlord
under the lease in respect of which the grassum is payable or the
landlord under any other lease of the property, and
“reversion” means the interest of the landlord in the property subject to
35
the lease.
(4)
In the application of this Chapter to Scotland—
(a)
references to a lease being granted out of a taxed lease are to the grant
of a sublease of land subject to the taxed lease, and

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 5 — Profits of property businesses: other rules about receipts and deductions
142

(b)
references to the lease so granted are to be read as references to the
sublease.
Chapter 5
Profits of property businesses: other rules about receipts and deductions
Furnished accommodation: receipts and deductions
5
308
Furnished lettings
(1)
In calculating the profits of a property business which consists of or includes a
furnished letting—
(a)
any sum payable for the use of furniture is brought into account as a
receipt, and
10
(b)
a deduction is allowed for expenses incurred in connection with the
provision of furniture.
(2)
But subsection (1) does not apply to receipts or expenses brought into account
in calculating the profits of a trade which consists of, or involves, making
furniture available for use in premises.
15
(3)
A furnished letting is a lease or other arrangement under which—
(a)
a sum is payable in respect of the use of premises, and
(b)
the person entitled to the use of the premises is also entitled, in
connection with that use, to the use of furniture.
(4)
In this section—
20
(a)
“premises” includes a caravan and a houseboat, and
(b)
“sum” includes the value of any consideration.
309
Rent-a-room relief
(1)
The rules for calculating the profits of an individual’s UK property business
are subject to Chapter 1 of Part 7 (rent-a-room relief).
25
(2)
That Chapter provides relief on income from the use of furnished
accommodation in the individual’s only or main residence (see, in particular,
sections 793 and 797).
Treatment of receipts on acquisition of business
310
Acquisition of business: receipts from transferor’s UK property business
30
(1)
This section applies if—
(a)
a person (“the transferor”) permanently ceased to carry on a UK
property business at any time,
(b)
at that time the transferor transferred to another (“the transferee”) the
right to receive sums arising from the carrying on of any business (“the
35
transferred business”) comprised in the transferor’s UK property
business, and
(c)
the transferee subsequently carries on the transferred business.