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 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)),
5
(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).
25
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)—

15

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

20

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)—

25

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),
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(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.
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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.
20
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
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(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).
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(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.
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(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—

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.
20
(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—
25
(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.
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(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—

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
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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—
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,