Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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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
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
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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,
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(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
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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
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(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.
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(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
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(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—
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(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.
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(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.
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(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).
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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—
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(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—
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(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),
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(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 profits 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.
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(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
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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.
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(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.
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(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”).
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(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
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tax year of all the accommodation specified in the election is at least 70.

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 6 — Commercial letting of furnished holiday accommodation
150

(4)
“The number of let days” for a tax year of any accommodation is the number
of days during the relevant period for which it is commercially let by the
person as holiday accommodation to members of the public.
(5)
Qualifying holiday accommodation may not be specified in more than one
election for a tax year.
5
(6)
An election for a tax year must be made on or before the first anniversary of the
normal self-assessment filing date for the tax year.
Separate profit calculations
327
Capital allowances and loss relief
(1)
If a UK property business consists of both—
10
(a)
the commercial letting of furnished holiday accommodation (“the
furnished holiday lettings part”), and
(b)
other businesses or transactions (“the other part”),

this section requires separate calculations to be made of the profits of the
furnished holiday lettings part and the other part.
15
(2)
The calculations must be made if—
(a)
section 248 or 249 of CAA 2001 (giving effect to allowances and
charges) applies to the furnished holiday lettings part or the other part,
or
(b)
any provision of Chapter 1 of Part 10 of ICTA (loss relief) applies in
20
relation to a loss made in either of those parts.
(3)
If there is a letting of accommodation only part of which is holiday
accommodation, such apportionments are to be made for the purposes of this
section as are just and reasonable.
328
Earned income and relevant UK earnings for pension purposes
25
(1)
If a UK property business consists of both—
(a)
the commercial letting of furnished holiday accommodation (“the
furnished holiday lettings part”), and
(b)
other businesses or transactions,

this section requires a separate calculation to be made of the profits of the
30
furnished holiday lettings part.
(2)
The calculation must be made if the profits of the furnished holiday lettings
part are treated as—
(a)
earned income under section 833(4)(c) of ICTA, or
(b)
income regarded as relevant UK earnings for pension purposes under
35
section 189(2)(b) of FA 2004.
(3)
If there is a letting of accommodation only part of which is holiday
accommodation, such apportionments are to be made for the purposes of this
section as are just and reasonable.

Income Tax (Trading and Other Income) Bill
Part 3 — Property income
Chapter 7 — Adjustment income
151

Chapter 7
Adjustment income
Adjustment on change of basis
329
Application of Chapter
(1)
This Chapter applies if—
5
(a)
a person carrying on a UK property business changes, from one period
of account to the next, the basis on which profits of the business are
calculated for income tax purposes,
(b)
the old basis accorded with the law or practice applicable in relation to
the period of account before the change, and
10
(c)
the new basis accords with the law and practice applicable in relation
to the period of account after the change.
(2)
The practice applicable in any case means the accepted practice in cases of that
description as to how profits of a UK property business should be calculated
for income tax purposes.
15
(3)
Subsections (3) to (6) of section 227 (what is meant by a person changing the
basis on which profits are calculated) apply for the purposes of this section as
they apply for the purposes of that section (but as if any reference to a trade
were to a UK property business).
330
Adjustment income and adjustment expense
20
(1)
An amount by way of adjustment must be calculated in accordance with
section 231, which applies in relation to a UK property business as it applies in
relation to a trade.
(2)
If the amount produced by the calculation is positive, it is treated as income
and charged to income tax under this Chapter.
25

It is referred to in this Chapter as “adjustment income”.
(3)
If the amount produced by the calculation is negative, a deduction is allowed
for it in calculating the profits of the business.

It is referred to in this Chapter as an “adjustment expense”.
(4)
This section is subject to section 234 (no adjustment for certain expenses
30
previously brought into account), which applies in relation to a UK property
business as it applies in relation to a trade.
331
Income charged
Tax is charged under this Chapter on the full amount of any adjustment
income arising in the tax year.
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332
Person liable
The person liable for any tax charged under this Chapter is the person
receiving or entitled to the adjustment income.