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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.

131

 

Additional calculation rule for reducing certain receipts

287     

Circumstances in which additional calculation rule applies

(1)   

The rule in section 288 (the additional calculation rule) applies in relation to the

calculation of receipts under—

section 277 (lease premiums),

5

section 279 (sums payable instead of rent),

section 280 (sums payable for surrender of lease),

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

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

(2)   

It applies if conditions A and B are met.

10

(3)   

Condition A is that—

(a)   

in the case of a receipt under section 277, 279 or 280, the lease is granted

out of a taxed lease,

(b)   

in the case of a receipt under section 281, the lease was granted out of a

taxed lease, and

15

(c)   

in the case of a receipt under section 282, the assignment is of a taxed

lease.

(4)   

A lease is a “taxed lease” for the purposes of this Chapter if—

(a)   

there is a receipt under any of sections 277 to 282 in respect of the lease,

or

20

(b)   

there would be such a receipt, but for the operation of the additional

calculation rule in the calculation of its amount.

   

In this Chapter such a receipt is referred to as a “taxed receipt”.

(5)   

Condition B is that the taxed receipt, or if there is more than one, at least one of

them, has an unused amount.

25

(6)   

See section 290 for an explanation of when a taxed receipt has an “unused

amount”.

288     

The additional calculation rule

(1)   

The rule in this section applies if the conditions mentioned in section 287 are

met.

30

(2)   

The additional calculation rule is that the amount given by the formula in

section 277, 279, 280, 281 or 282 must be reduced by the amount calculated in

accordance with this section in order to give the amount of the receipt under

calculation.

(3)   

The amount of the reduction is—

35

(a)   

if there is one taxed receipt which has an unused amount, the basic

relieving amount by reference to that receipt, and

(b)   

if there is more than one taxed receipt which has an unused amount, the

total of the basic relieving amounts by reference to each receipt,

   

adjusted, if necessary, in the light of section 289(5) (reduction not to exceed

40

amount being reduced).

 
 

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

132

 

(4)   

The basic relieving amount by reference to a taxed receipt is given by the

formula—equation: over[cross[char[A],times[char[L],char[R],char[P]]],times[char[T],char[R],char[P]]]

   

where—

A is the unreduced amount of the taxed receipt (which is, generally, the

amount given by the formula in section 277, 279, 280, 281 or 282, but see

5

section 290(2) to (4)),

LRP is the receipt period of the receipt under calculation, and

TRP is the receipt period of the taxed receipt.

(5)   

But the basic relieving amount is different if section 289(2) or (4) applies

(certain special cases).

10

(6)   

For the purposes of this Chapter, the “receipt period” of a receipt is—

(a)   

in the case of a receipt under section 277 or 280, the effective duration

of the lease,

(b)   

in the case of a receipt under section 279, the period in relation to which

the sum payable instead of rent is payable,

15

(c)   

in the case of a receipt under section 281, the period for which the

variation or waiver has effect, and

(d)   

in the case of a receipt under section 282, the effective duration of the

lease remaining at the date of the assignment.

289     

The additional calculation rule: special cases

20

(1)   

This section explains how section 288 operates in some special cases.

(2)   

If—

(a)   

the receipt under calculation is under any of sections 277 to 281, and

(b)   

the lease does not extend to the whole of the premises subject to the

taxed lease,

25

   

the basic relieving amount by reference to a taxed receipt is calculated by

multiplying the amount given by the formula in subsection (4) of section 288

by the fraction of those premises which is subject to the lease.

(3)   

This fraction is calculated on a just and reasonable basis.

(4)   

If the basic relieving amount given by section 288(4) or subsection (2) above by

30

reference to a taxed receipt would otherwise exceed the unused amount of the

taxed receipt, the basic relieving amount is the unused amount.

(5)   

If the amount of the reduction under section 288 would otherwise exceed the

amount given, in respect of the receipt under calculation, by the formula in

section 277, 279, 280, 281 or 282, the amount of the reduction is equal to the

35

amount given by the formula.

290     

Meaning of “unused amount” and “unreduced amount”

(1)   

For the purposes of this Chapter, a taxed receipt has an “unused amount” if the

unreduced amount exceeds the total of the reductions and deductions referred

to in subsection (5).

40

 
 

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

133

 

(2)   

In this Chapter the “unreduced amount” of a taxed receipt is the amount given,

in respect of the taxed receipt, by the formula in section 277, 279, 280, 281 or

282.

(3)   

Subsection (4) applies to a taxed receipt under section 277 (lease premiums) as

a result of section 278 (amount treated as lease premium where work required).

5

(4)   

If the obligation to carry out work included the carrying out of work which

gives, or will give, rise to qualifying expenditure under CAA 2001, the

unreduced amount of the taxed receipt is calculated as if the obligation had not

included the carrying out of that work.

(5)   

The reductions and deductions mentioned in subsection (1) are—

10

(a)   

the reductions under section 288 by reference to the taxed receipt,

(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, and

15

(c)   

the deductions allowed in calculating the profits of a property business

for 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.

(6)   

For the purposes of this Chapter references to a reduction under section 288 by

20

reference to a taxed receipt are to a reduction under that section so far as

attributable to the taxed receipt.

Deductions in relation to certain receipts

291     

Deductions for expenses under section 292

(1)   

Section 292 (tenants under taxed leases treated as incurring expenses) applies

25

in calculating the profits of a property business carried on by the tenant under

a taxed lease for the purpose of making deductions for the expenses of the

property business.

(2)   

A deduction is allowed for an expense under section 292 for a qualifying day

on which the whole or part of the premises subject to the taxed lease is—

30

(a)   

occupied by the tenant for the purpose of carrying on the property

business, or

(b)   

sublet.

(3)   

But any deduction for an expense under section 292 is subject to the application

of any provision of Chapter 4 of Part 2 (as applied to property businesses by

35

section 272).

(4)   

The amount of the deduction for an expense under section 292 for a qualifying

day by reference to a taxed receipt may be reduced in order to comply with

section 295 (limit on reductions and deductions).

(5)   

For the meaning of expressions used in this section, see in particular—

40

section 287(4) (“taxed lease”), and

section 287(4) (“taxed receipt”).

 
 

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

134

 

292     

Tenants under taxed leases treated as incurring expenses

(1)   

The tenant under a taxed lease is treated as incurring an expense of a revenue

nature in respect of the premises subject to the taxed lease for each qualifying

day.

(2)   

If there is more than one taxed receipt, this section applies separately in

5

relation to each of them.

(3)   

A day is a “qualifying day”, in relation to a taxed receipt, if it falls within the

receipt period of the taxed receipt.

(4)   

The amount of the expense for the qualifying day by reference to the taxed

receipt is given by the formula—equation: over[char[A],times[char[T],char[R],char[P]]]

10

   

where—

A is the unreduced amount of the taxed receipt, and

TRP is the number of days in the receipt period of the taxed receipt.

(5)   

This section is subject to sections 293 and 294 (restrictions on expenses where

the additional calculation rule is relevant).

15

(6)   

For the meaning of expressions used in this section, see in particular—

section 288(6) (“receipt period”), and

section 290(2) to (4) (“unreduced amount”).

293     

Restrictions on section 292 expenses: the additional calculation rule

(1)   

This section applies if, in calculating the amount of a receipt (“the lease

20

premium receipt”), there is a reduction under section 288 (the additional

calculation rule) by reference to the taxed receipt.

(2)   

Subsections (3) to (5) provide for the application of section 292 for a qualifying

day that falls within the receipt period of the lease premium receipt.

(3)   

The tenant under the taxed lease is treated as incurring an expense under

25

section 292 for the qualifying day by reference to the taxed receipt only if the

daily amount of the taxed receipt exceeds the daily reduction of the lease

premium receipt.

(4)   

If the condition in subsection (3) is met, the amount of the expense under

section 292 for the qualifying day by reference to the taxed receipt is equal to

30

that excess.

(5)   

If the qualifying day falls within the receipt periods of more than one lease

premium receipt, the reference in subsection (3) to the daily reduction of the

lease premium receipt is to be read as a reference to the total of the daily

reductions of each of the lease premium receipts whose receipt period includes

35

the qualifying day.

(6)   

In this section—

 
 

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

135

 

the “daily amount” of the taxed receipt is given by the formula—equation: over[char[A],times[char[T],char[R],char[P]]]

where—

A is the unreduced amount of the taxed receipt (see section 290(2) to

(4)), and

TRP is the number of days in the receipt period of the taxed receipt, and

5

the “daily reduction” of a lease premium receipt is given by the formula—equation: over[times[char[A],char[R]],times[char[R],char[R],char[P]]]

where—

AR is the reduction under section 288 by reference to the taxed receipt

(see section 290(6)), and

10

RRP is the number of days in the receipt period of the lease premium

receipt.

(7)   

Section 294 explains how this section operates if the lease premium receipt is

in respect of a lease that has been granted out of the taxed lease and does not

extend to the whole of the premises subject to the taxed lease.

15

294     

Restrictions on section 292 expenses: lease of part of premises

(1)   

This section applies if—

(a)   

a lease has been granted out of the taxed lease,

(b)   

the lease does not extend to the whole of the premises subject to the

taxed lease, and

20

(c)   

in calculating the amount of a receipt under any of sections 277 to 281

(receipts in respect of lease premiums or sums payable instead of rent,

for surrender of lease or for variation or waiver of term of lease) in

respect of the lease (“the lease premium receipt”), there is a reduction

under section 288 by reference to the taxed receipt.

25

(2)   

Subsections (3) to (5) apply for a qualifying day that falls within the receipt

period of the lease premium receipt.

(3)   

Sections 292 and 293 apply separately in relation to the part of the premises

subject to the lease and to the remainder of the premises.

(4)   

If—

30

(a)   

more than one lease that does not extend to the whole of the premises

subject to the taxed lease has been granted out of the taxed lease, and

(b)   

the qualifying day falls within the receipt period of two or more lease

premium receipts that relate to different leases,

   

sections 292 and 293 apply separately in relation to each part of the premises

35

subject to a lease to which such a receipt relates and to the remainder of the

premises.

(5)   

Where sections 292 and 293 apply in relation to a part of the premises, A

becomes the amount calculated by multiplying the unreduced amount of the

taxed receipt by the fraction of the premises constituted by the part.

40

 
 

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

136

 

(6)   

This fraction is calculated on a just and reasonable basis.

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

5

(b)   

the deductions allowed in calculating the profits of a property business

for 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).

10

(2)   

The amount mentioned in subsection (1) is the difference between—

(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)

15

by reference to the taxed receipt.

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

20

business (within the meaning of section 70A(4) of ICTA) as a result of

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

25

(3) of ICTA (reductions in certain receipts under section 34 or 35 of

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

30

(b)   

the corporation tax receipt is treated as a taxed receipt.

(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

35

duration of the lease, and

(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

40

which is a corporation tax receipt is the amount of the corporation tax receipt

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—

 
 

 
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