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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.

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

35

(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.

20

(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

45

 
 

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.

20

(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.

20

(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.

 
 

 
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