House of Commons portcullis
House of Commons
Session 2004 - 05
Internet Publications
Other Bills before Parliament

Income Tax (Trading and Other Income) Bill


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

143

 

(2)   

Sums—

(a)   

which the transferee receives as a result of the transfer, and

(b)   

which are not brought into account in calculating the profits of the

transferor’s UK property business for any period before the cessation,

   

are brought into account in calculating the profits of the transferee’s UK

5

property business in the period of account in which they are received.

(3)   

Any sums mentioned in subsection (1)(b) which are received after the cessation

of the transferor’s property business are not post-cessation receipts (see

Chapter 10).

(4)   

This section has effect as if it were contained in Chapter 10.

10

Reverse premiums as receipts

311     

Reverse premiums

(1)   

This section applies if—

(a)   

a person receives a reverse premium, and

(b)   

the reverse premium is not brought into account under section 101(2)

15

in calculating the profits of any trade carried on by the person.

(2)   

The person is treated as—

(a)   

entering into a transaction mentioned in section 264 (if the land to

which the property transaction relates is in the United Kingdom) or

section 265 (if that land is outside the United Kingdom), and

20

(b)   

receiving the reverse premium as a result of that transaction.

(3)   

Accordingly, the reverse premium is brought into account as a receipt in

calculating the profits of the property business which consists of or includes

that transaction.

(4)   

Subsection (5) applies if—

25

(a)   

two or more of the parties to the property arrangements are connected

persons, and

(b)   

the terms of those arrangements are not such as would reasonably have

been expected if those persons had been dealing at arm’s length.

(5)   

The whole amount or value of the reverse premium is brought into account in

30

the period of account in which the property transaction is entered into.

(6)   

Expressions used in this section and sections 99 to 103 have the same meaning

in this section as they do in those sections.

Deductions for expenditure on energy-saving items

312     

Deduction for expenditure on energy-saving items

35

(1)   

This section applies if—

(a)   

a person carries on a property business in relation to land which

consists of or includes a dwelling-house,

(b)   

the person incurs expenditure in acquiring and installing in the

dwelling-house an energy-saving item (see subsections (5) to (7)),

40

(c)   

the expenditure is incurred before 6th April 2009,

 
 

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

144

 

(d)   

a deduction for the expenditure is not prohibited by the wholly and

exclusively rule but would otherwise be prohibited by the capital

prohibition rule (see subsection (8)), and

(e)   

no allowance under CAA 2001 may be claimed in respect of the

expenditure.

5

(2)   

In calculating the profits of the business, a deduction for the expenditure is

allowed.

(3)   

But any deduction is subject to—

(a)   

section 313 (restrictions on the relief), and

(b)   

any provision made by regulations under section 314.

10

(4)   

If, on a just and reasonable apportionment of any expenditure, part of the

expenditure would qualify for the relief (but the remainder would not), a

deduction is allowed for that part.

(5)   

“Energy-saving item” means—

(a)   

cavity wall insulation,

15

(b)   

loft insulation, or

(c)   

such other descriptions of items of an energy-saving nature as are for

the time being specified in regulations made by the Treasury.

(6)   

The Treasury may by regulations provide for an item to be treated as an

energy-saving item only if it satisfies such conditions as may be—

20

(a)   

specified in, or

(b)   

determined in accordance with,

   

the regulations.

(7)   

The conditions may include conditions imposed by reference to information or

documents issued by any body, person or organisation.

25

(8)   

In this section—

“the capital prohibition rule” means the rule in section 33 (capital

expenditure), as applied by section 272, and

“the wholly and exclusively rule” means the rule in section 34 (expenses

not wholly and exclusively for trade and unconnected losses), as

30

applied by section 272.

313     

Restrictions on relief

(1)   

This section restricts deductions that would otherwise be allowable under

section 312.

(2)   

No deduction is allowed if, when the energy-saving item is installed, the

35

dwelling-house—

(a)   

is in the course of construction, or

(b)   

is comprised in land in which the person does not have an interest or is

in the course of acquiring an interest or further interest.

(3)   

No deduction is allowed in respect of expenditure in a tax year if—

40

(a)   

the business consists of or includes the commercial letting of furnished

holiday accommodation (see Chapter 6), and

(b)   

the dwelling-house constitutes some or all of that accommodation for

the tax year.

 
 

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

145

 

(4)   

No deduction is allowed if—

(a)   

the person derives rent-a-room receipts from the dwelling-house, and

(b)   

those receipts are brought into account in calculating the profits of the

business in accordance with section 793 or 797 (rent-a-room relief).

(5)   

No deduction is allowed in respect of expenditure treated by section 57 (as

5

applied by section 272) as incurred on the date on which the person starts to

carry on the business unless the expenditure was incurred not more than 6

months before that date.

314     

Regulations

(1)   

In relation to any deduction under section 312, the Treasury may make

10

regulations for—

(a)   

restricting or reducing the amount of expenditure for which the

deduction is allowable,

(b)   

excluding entitlement to the deduction in such cases as may be

specified in, or determined in accordance with, the regulations,

15

(c)   

determining who is (and is not) entitled to the deduction if different

persons have different interests in land that consists of or includes the

whole or part of a building containing one or more dwelling-houses,

(d)   

making apportionments if the property business is carried on by

persons in partnership or an interest in land is beneficially owned by

20

persons jointly or in common.

(2)   

The apportionments that may be made include apportionments to companies

within the charge to corporation tax.

Deductions for expenditure on sea walls

315     

Deduction for expenditure on sea walls

25

(1)   

This section applies if in a tax year a person —

(a)   

is the owner or tenant of any premises, and

(b)   

incurs expenditure in making a sea wall or other embankment

necessary for the preservation or protection of the premises against the

encroachment or overflowing of the sea or any tidal river.

30

(2)   

In calculating the profits of any property business carried on by the person in

relation to the premises, a deduction is allowed for the expenditure in each tax

year in the deduction period.

(3)   

The deduction period comprises—

(a)   

the tax year in which the expenditure is incurred, and

35

(b)   

the next 20 tax years.

(4)   

The amount of the deduction is 1/21 of the expenditure.

(5)   

No deduction is allowed for any expenditure in respect of which a capital

allowance has been made.

(6)   

Section 316 deals with the case of an interest in the premises being transferred

40

(and this section applies in that case as if the reference to the person in

subsection (2) above included the transferor and the transferee).

 
 

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

146

 

316     

Transfer of interest in premises

(1)   

This section applies if, during the deduction period, the whole of the person’s

interest in the premises or in any part of them is transferred, whether by

operation of law or otherwise.

(2)   

For the tax year in which the transfer takes place—

5

(a)   

the transferor and the transferee are entitled to a part of any deduction

under section 315, and

(b)   

the amount of the deduction is determined by what is just and

reasonable.

(3)   

For subsequent tax years in the deduction period, the entitlement to any

10

deduction under section 315 depends on whether the interest transferred is in

the whole of the premises or in part of them.

(4)   

If the interest transferred is in the whole of the premises, the transferee (but not

the transferor) is entitled to any deduction under section 315.

(5)   

If the interest transferred is in part of the premises—

15

(a)   

the transferor and the transferee are entitled to a part of any deduction

under section 315, and

(b)   

the amount of the deduction is determined by reference to what is

properly referable to the part of the premises.

(6)   

This section is supplemented by sections 317 (ending of lease of premises) and

20

318 (transfer involving company within the charge to corporation tax).

317     

Ending of lease of premises

(1)   

If a person’s interest in the premises is a lease that comes to an end before the

end of the deduction period, the interest is treated as if transferred to the

following persons.

25

(2)   

If a new lease of the premises is granted and the new tenant makes a payment

in respect of the embankment in question to the old tenant, the transferee is the

new tenant.

(3)   

Otherwise the transferee is the owner of the interest in immediate reversion on

the lease (or, in Scotland, the landlord).

30

318     

Transfer involving company within the charge to corporation tax

(1)   

This section explains how section 316 works if—

(a)   

the transferor is a person within the charge to income tax and the

transferee is a company within the charge to corporation tax­, or

(b)   

the transferor is a company within the charge to corporation tax and the

35

transferee is a person within the charge to income tax­.

(2)   

Section 316 applies only for the purpose of determining—

(a)   

whether the person within the charge to income tax is entitled to a

deduction (or part of a deduction) under section 315, and

(b)   

the amount of any such deduction.

40

(3)   

Accordingly, any reference to—

(a)   

whether a person is entitled to a deduction (or part of a deduction)

under section 315, or

 
 

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

147

 

(b)   

the amount of any such deduction,

   

is ignored if the person is a company within the charge to corporation tax.

(4)   

For any entitlement of a company within the charge to corporation tax to a

deduction for any of the expenditure, see section 30 of ICTA (corresponding

corporation tax provision).

5

Mineral royalties

319     

Relief in respect of mineral royalties

(1)   

This section applies if in a tax year a person who is UK resident, or ordinarily

UK resident, carries on a UK property business the receipts of which consist of

or include mineral royalties—

10

(a)   

which the person is entitled to receive under a mineral lease or

agreement, and

(b)   

which are not chargeable to tax under Chapter 8 (rent receivable in

connection with a UK section 12(4) concern).

(2)   

In calculating the profits of the business, the person is treated as—

15

(a)   

entitled to receive only half of the total of the mineral royalties arising

under the lease or agreement in the tax year, and

(b)   

making in the tax year only half of the total of the payments made in

respect of the management of the property concerned.

(3)   

Sections 341 to 343 (meaning of “mineral lease or agreement” and “mineral

20

royalties”) apply for the purposes of this section as they apply for the purposes

of Chapter 8.

Apportionments on sale of land

320     

Nature of item apportioned on sale of estate or interest in land

(1)   

This section applies if—

25

(a)   

a person sells an estate or interest in land,

(b)   

on the sale a part of a receipt or outgoing in respect of the estate or

interest is apportioned to the seller, and

(c)   

the receipt or outgoing is receivable or to be paid by the buyer after the

apportionment is made.

30

(2)   

In calculating the profits of the seller’s property business, the part apportioned

is treated as being of the same nature as the receipt or outgoing.

Mutual business

321     

Mutual business

(1)   

Nothing in this Part is to be read as applying the rules relating to mutual

35

business to property businesses.

(2)   

Accordingly, receipts and expenses are to be brought into account in

calculating the profits of a person’s property business even if a relationship of

mutuality exists between that person and another.

 
 

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 6 — Commercial letting of furnished holiday accommodation

148

 

Chapter 6

Commercial letting of furnished holiday accommodation

Introduction

322     

Introduction

(1)   

This Chapter explains for the purposes of this Part what is meant by the

5

commercial letting of furnished holiday accommodation (see sections 323 to

326).

(2)   

It matters whether a UK property business consists of or includes the

commercial letting of furnished holiday accommodation for the purposes of—

(a)   

section 312 (deduction for expenditure on energy-saving items: see

10

section 313(3)),

(b)   

Chapter 1 of Part 10 of ICTA (loss relief: see section 504A of that Act),

(c)   

section 833(4)(c) of ICTA (income regarded as earned income: see

section 504A of that Act),

(d)   

certain provisions of TCGA 1992 (see section 241 of that Act),

15

(e)   

CAA 2001 (see, for example, sections 248 and 249 of that Act), and

(f)   

section 189(2)(b) of FA 2004 (income regarded as relevant UK earnings

for pension purposes: see section 504A of that Act).

(3)   

This Chapter also supplements the above provisions by providing in certain

circumstances for the profit of the furnished holiday lettings part of a UK

20

property business to be calculated separately (see sections 327 and 328).

Definition

323     

Meaning of “commercial letting of furnished holiday accommodation”

(1)   

A letting is a lease or other arrangement under which a person is entitled to the

use of accommodation.

25

(2)   

A letting of accommodation is commercial if the accommodation is let—

(a)   

on a commercial basis, and

(b)   

with a view to the realisation of profits.

(3)   

A letting is of furnished holiday accommodation if—

(a)   

the person entitled to the use of the accommodation is also entitled, in

30

connection with that use, to the use of furniture, and

(b)   

the accommodation is qualifying holiday accommodation (see sections

325 and 326).

(4)   

This section applies for the purposes of this Chapter.

324     

Meaning of “relevant period” in sections 325 and 326

35

(1)   

For the purposes of sections 325 and 326 “the relevant period” for

accommodation let by a person in a tax year is determined as follows.

(2)   

If the accommodation was not let by the person as furnished accommodation

in the previous tax year, “the relevant period” is 12 months beginning with the

 
 

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 6 — Commercial letting of furnished holiday accommodation

149

 

first day in the tax year on which it is let by the person as furnished

accommodation.

(3)   

If the accommodation—

(a)   

was let by the person as furnished accommodation in the previous tax

year, but

5

(b)   

is not let by the person as furnished accommodation in the following

tax year,

   

“the relevant period” is 12 months ending with the last day in the tax year on

which it is let by the person as furnished accommodation.

(4)   

Otherwise “the relevant period” is the tax year.

10

325     

Meaning of “qualifying holiday accommodation”

(1)   

Accommodation which is let by a person during a tax year is “qualifying

holiday accommodation” for the tax year if the availability, letting and pattern

of occupation conditions are met.

(2)   

The availability condition is that, during the relevant period, the

15

accommodation is available for commercial letting as holiday accommodation

to the public generally for at least 140 days.

(3)   

The letting condition is that, during the relevant period, the accommodation is

commercially let as holiday accommodation to members of the public for at

least 70 days.

20

(4)   

For the purposes of the letting condition, a letting of accommodation for a

period of longer-term occupation (see subsection (6)) is not a letting of it as

holiday accommodation.

(5)   

The pattern of occupation condition is that, during the relevant period, not

more than 155 days fall during periods of longer-term occupation.

25

(6)   

For the purposes of this section a “period of longer-term occupation” is a

continuous period of more than 31 days during which the accommodation is

in the same occupation otherwise than because of circumstances that are not

normal.

326     

Under-used holiday accommodation: averaging elections

30

(1)   

This section applies if during a tax year a person lets both—

(a)   

qualifying holiday accommodation, and

(b)   

accommodation that would be qualifying holiday accommodation if

the letting condition (see section 325(3)) were met in relation to it

(“under-used accommodation”).

35

(2)   

The person may make an election for the tax year specifying—

(a)   

the qualifying holiday accommodation, and

(b)   

any or all of the under-used accommodation.

(3)   

The under-used accommodation so specified is treated as qualifying holiday

accommodation for the tax year if the average of the number of let days for the

40

tax year of all the accommodation specified in the election is at least 70.

 
 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2004
Revised 1 December 2004