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

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 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.

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.

 
 

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.

35

332     

Person liable

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

receiving or entitled to the adjustment income.

 
 

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

© Parliamentary copyright 2005
Revised 4 February 2005