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Income Tax (Trading and Other Income) Bill


Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 3 — Profits of property businesses: basic rules

120

 

267     

Activities not for generating income from land

For the purposes of this Chapter the following activities are not carried on for

generating income from land—

(a)   

farming or market gardening in the United Kingdom (but see section 9

(UK farming or market gardening treated as trade)),

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(b)   

any other occupation of land (but see section 10 (certain commercial

occupation of UK land treated as trade)), and

(c)   

activities for the purposes of a concern to which section 12 applies

(profits of mines, quarries etc.).

Chapter 3

10

Profits of property businesses: basic rules

Charge to tax on profits of a property business

268     

Charge to tax on profits of a property business

Income tax is charged on the profits of a property business.

269     

Territorial scope of charge to tax

15

(1)   

Profits of a UK property business are chargeable to tax under this Chapter

whether the business is carried on by a UK resident or a non-UK resident.

(2)   

Profits of an overseas property business are chargeable to tax under this

Chapter only if the business is carried on by a UK resident.

(3)   

But, in the case of an overseas property business carried on by a UK resident to

20

whom the remittance basis applies, the only profits of the business chargeable

to tax under this Chapter are those in respect of land in the Republic of Ireland.

(4)   

For a UK resident to whom the remittance basis applies, see also Chapter 11

(charge to tax on overseas property income other than income arising in

Republic of Ireland).

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270     

Income charged

(1)   

Tax is charged under this Chapter on the full amount of the profits arising in

the tax year.

(2)   

Subsection (1) is subject to Part 8 (foreign income: special rules).

271     

Person liable

30

The person liable for any tax charged under this Chapter is the person

receiving or entitled to the profits.

 
 

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 3 — Profits of property businesses: basic rules

121

 

Calculation of profits

272     

Profits of a property business: application of trading income rules

(1)   

The profits of a property business are calculated in the same way as the profits

of a trade.

(2)   

But the provisions of Part 2 (trading income) which apply as a result of

5

subsection (1) are limited to the following—

 

In Chapter 3 (basic rules)

 
 

section 25

generally accepted accounting practice

 
 

section 26

losses calculated on same basis as profits

 
 

section 27

receipts and expenses

 

10

 

section 28

items treated under CAA 2001 as receipts

 
  

and expenses

 
 

section 29

interest

 
 

In Chapter 4 (rules restricting deductions)

 
 

section 33

capital expenditure

 

15

 

section 34

expenses not wholly and exclusively for

 
  

trade and unconnected losses

 
 

section 35

bad and doubtful debts

 
 

sections 36 and 37

unpaid remuneration

 
 

sections 38 to 44

employee benefit contributions

 

20

 

sections 45 to 47

business entertainment and gifts

 
 

sections 48 to 50

car or motor cycle hire

 
 

section 51

patent royalties

 
 

section 52

exclusion of double relief for interest

 
 

section 53

social security contributions

 

25

 

section 54

penalties, interest and VAT surcharges

 
 

section 55

crime-related payments

 
 

In Chapter 5 (rules allowing deductions)

 
 

section 57

pre-trading expenses

 
 

sections 58 and 59

incidental costs of obtaining finance

 

30

 

section 68

replacement and alteration of trade tools

 
 

section 69

payments for restrictive undertakings

 
 
 

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 3 — Profits of property businesses: basic rules

122

 
 

sections 70 and 71

seconded employees

 
 

section 72

payroll deduction schemes: contributions

 
  

to agents’ expenses

 
 

sections 73 to 75

counselling and retraining expenses

 
 

sections 76 to 80

redundancy payments etc.

 

5

 

section 81

personal security expenses

 
 

sections 82 to 86

contributions to local enterprise

 
  

organisations or urban regeneration

 
  

companies

 
 

sections 87 and 88

scientific research

 

10

 

sections 89 and 90

expenses connected with patents, designs

 
  

and trade marks

 
 

section 91

payments to Export Credits Guarantee

 
  

Department

 
 

In Chapter 6 (receipts)

 

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section 96

capital receipts

 
 

section 97

debts incurred and later released

 
 

section 104

distribution of assets of mutual concerns

 
 

section 105

industrial development grants

 
 

section 106

sums recovered under insurance policies

 

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etc.

 
 

In Chapter 7 (gifts to charities etc.)

 
 

section 109

receipt by donor or connected person of

 
  

benefit attributable to certain gifts

 
 

In Chapter 11 (other specific trades)

 

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section 155

levies and repayments under FISMA 2000

 
 

In Chapter 13 (deductions from profits)

 
 

sections 188 to 191

unremittable amounts

 
 

(3)   

In those provisions the expression “this Part” is to be read as a reference to

those provisions as applied by subsection (2) and to the other provisions of Part

30

3.

273     

Amounts not brought into account as part of a property business

(1)   

The rules for calculating the profits of a property business need to be read with

the following provisions of Part 2 (trading income)—

(a)   

section 19 (tied premises),

35

(b)   

section 20 (caravan sites where trade carried on),

 
 

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 3 — Profits of property businesses: basic rules

123

 

(c)   

section 21 (surplus business accommodation), and

(d)   

section 22(3) (payments for wayleaves).

(2)   

Those provisions secure that amounts which would otherwise be brought into

account in calculating the profits of the business are, or may be, brought into

account instead in calculating the profits of a trade.

5

274     

Relationship between rules prohibiting and allowing deductions

(1)   

Any relevant permissive rule in this Part—

(a)   

has priority over any relevant prohibitive rule in this Part, but

(b)   

is subject to sections 48 (car or motor cycle hire) and 55 (crime-related

payments), as applied by section 272.

10

(2)   

In this section “any relevant permissive rule in this Part” means any provision

of this Part (apart from sections 291 to 294) which allows a deduction in

calculating the profits of a property business.

(3)   

In this section “any relevant prohibitive rule in this Part”, in relation to any

deduction, means any provision of this Part (apart from sections 48 and 55, as

15

applied by section 272) which might otherwise be read as—

(a)   

prohibiting the deduction, or

(b)   

restricting the amount of the deduction.

(4)   

In this section any reference to any provision of this Part includes any

provision applied by section 272.

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Apportionment of profits

275     

Apportionment etc. of profits to tax year

(1)   

This section applies if a period of account of a property business does not

coincide with a tax year.

(2)   

Any of the following steps may be taken if they are necessary in order to arrive

25

at the profits or losses of the tax year—

(a)   

apportioning the profits or losses of a period of account to the parts of

that period falling in different tax years, and

(b)   

adding the profits or losses of a period of account (or part of a period)

to profits or losses of other periods of account (or parts).

30

(3)   

The steps must be taken by reference to the number of days in the periods

concerned.

(4)   

But the person carrying on the business may use a different way of measuring

the length of the periods concerned if—

(a)   

it is reasonable to do so, and

35

(b)   

the way of measuring the length of periods is used consistently for the

purposes of the business.

 
 

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

124

 

Chapter 4

Profits of property businesses: lease premiums etc.

Introduction

276     

Introduction

(1)   

This Chapter provides for certain amounts (which would otherwise generally

5

be amounts of a capital nature) to be brought into account as receipts in

calculating the profits of a property business.

(2)   

The amounts relate to short-term leases in the case of—

section 277 (lease premiums),

section 278 (amount treated as lease premium where work required),

10

section 280 (sums payable for surrender of lease), and

section 282 (assignments for profit of lease granted at undervalue).

(3)   

The amounts relate to any lease in the case of—

section 279 (sums payable instead of rent), and

section 281 (sums payable for variation or waiver of term of lease).

15

(4)   

The amounts relate to the sale of any estate or interest in land in the case of—

section 284 (sales with right to reconveyance), and

section 285 (sale and leaseback transactions).

(5)   

This Chapter also permits certain deductions in calculating the profits of

property businesses carried on by tenants under certain leases (see sections 291

20

and 292).

(6)   

In this Chapter “short-term lease” means a lease whose effective duration is 50

years or less.

Amounts treated as receipts: leases

277     

Lease premiums

25

(1)   

This section applies if a premium is required to be paid—

(a)   

under a short-term lease, or

(b)   

otherwise under the terms subject to which a short-term lease is

granted.

(2)   

The person to whom the premium is due is treated as—

30

(a)   

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

which the lease relates is in the United Kingdom) or section 265 (if that

land is outside the United Kingdom), and

(b)   

receiving the amount calculated under subsections (4) and (5) as a

result of that transaction.

35

(3)   

That amount is brought into account as a receipt in calculating the profits of the

property business which consists of or includes that transaction for the tax year

in which the lease is granted.

 
 

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

125

 

(4)   

The amount of the receipt is given by the formula—equation: cross[char[P],id[over[plus[num[50.0000000000000000,"50"],minus[char[Y]]],num[50.0000000000000000,

"50"]]]]

   

where—

P is the premium, and

Y is the number of complete periods of 12 months (other than the first)

comprised in the effective duration of the lease.

5

(5)   

But, if the rule in section 288 (the additional calculation rule) applies, the

amount given by the formula in subsection (4) is reduced by the amount

calculated in accordance with section 288.

278     

Amount treated as lease premium where work required

(1)   

This section applies if the terms subject to which a lease is granted impose on

10

the tenant an obligation to carry out work on the premises.

(2)   

The lease is treated for the purposes of section 277 (lease premiums) as

requiring the payment of a premium to the landlord (in addition to any other

premium).

(3)   

The amount of the premium is the amount by which the value of the landlord’s

15

estate or interest immediately after the commencement of the lease exceeds

what its value would have been at that time if the terms of the lease did not

impose the obligation on the tenant.

(4)   

An obligation, or part of an obligation, that requires the carrying out of

excepted work is ignored for the purposes of this section.

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(5)   

Work is “excepted work” if the payment for carrying it out would, if the

landlord and not the tenant were obliged to carry it out, be deductible as an

expense in calculating the profits of the landlord’s property business.

279     

Sums payable instead of rent

(1)   

This section applies if—

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(a)   

under the terms subject to which a lease is granted a sum becomes

payable by the tenant instead of the whole or a part of the rent for a

period, and

(b)   

the period is 50 years or less.

(2)   

The person to whom the sum is due is treated as—

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(a)   

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

which the lease relates is in the United Kingdom) or section 265 (if that

land is outside the United Kingdom), and

(b)   

receiving the amount calculated under subsections (4) and (5) as a

result of that transaction.

35

(3)   

That amount is brought into account as a receipt in calculating the profits of the

property business which consists or of includes that transaction for the tax year

in which the sum becomes payable.

 
 

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

126

 

(4)   

The amount of the receipt is given by the formula—equation: cross[char[S],id[over[plus[num[50.0000000000000000,"50"],minus[char[Y]]],num[50.0000000000000000,

"50"]]]]

   

where—

S is the sum payable instead of rent, and

Y is the number of complete periods of 12 months (other than the first)

comprised in the period in relation to which the sum is payable.

5

(5)   

But, if the rule in section 288 (the additional calculation rule) applies, the

amount given by the formula in subsection (4) is reduced by the amount

calculated in accordance with section 288.

(6)   

In determining for the purposes of this Chapter the duration of the period in

relation to which the sum is payable, any part of the period that falls after the

10

expiry of the effective duration of the lease is excluded.

280     

Sums payable for surrender of lease

(1)   

This section applies if, under the terms subject to which a short-term lease is

granted, a sum becomes payable by the tenant as consideration for the

surrender of the lease.

15

(2)   

The person to whom the sum is due is treated as—

(a)   

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

which the lease relates is in the United Kingdom) or section 265 (if that

land is outside the United Kingdom), and

(b)   

receiving the amount calculated under subsections (4) and (5) as a

20

result of that transaction.

(3)   

That amount is brought into account as a receipt in calculating the profits of the

property business which consists of or includes that transaction for the tax year

in which the sum becomes payable.

(4)   

The amount of the receipt is given by the formula—equation: cross[char[S],id[over[plus[num[50.0000000000000000,"50"],minus[char[Y]]],num[50.0000000000000000,

"50"]]]]

25

   

where—

S is the sum payable as consideration for the surrender of the lease, and

Y is the number of complete periods of 12 months (other than the first)

comprised in the effective duration of the lease.

(5)   

But, if the rule in section 288 (the additional calculation rule) applies, the

30

amount given by the formula in subsection (4) is reduced by the amount

calculated in accordance with section 288.

281     

Sums payable for variation or waiver of term of lease

(1)   

This section applies if—

(a)   

a sum becomes payable by the tenant (otherwise than by way of rent)

35

as consideration for the variation or waiver of a term of a lease,

 
 

 
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