Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 4 — Loss relief
Chapter 4 — Losses from property businesses
59

accommodation to be treated as a trade for the purposes of this Part (see section
127).
Carry-forward property loss relief
118
Carry forward against subsequent property business profits
(1)
Relief is given to a person under this section if the person—
5
(a)
carries on a UK property business or overseas property business (alone
or in partnership) in a tax year, and
(b)
makes a loss in the business in the tax year.
(2)
The relief is given by deducting the loss in calculating the person’s net income
for subsequent tax years (see Step 2 of the calculation in section 23).
10
(3)
But a deduction for that purpose is to be made only from profits of the
business.
(4)
In calculating a person’s net income for a tax year, deductions under this
section from the profits of a business are to be made before deductions of any
other reliefs from those profits.
15
(5)
No relief is to be given under this section so far as relief for the loss is given
under section 120.
(6)
This section needs to be read with section 119 (how relief works).
119
How relief works
This section explains how the deductions are to be made.
20
The amount of the loss to be deducted at any step is limited in accordance with
section 25(4) and (5).

Step 1
Deduct the loss from the profits of the business for the next tax year.
25

Step 2
Deduct from the profits of the business for the following tax year the amount
of the loss not previously deducted.

30
Step 3
Continue to apply Step 2 in relation to the profits of the business for subsequent
tax years until all the loss is deducted.
Property loss relief against general income
120
Deduction of property losses from general income
35
(1)
A person may make a claim for property loss relief against general income if—
(a)
in a tax year (“the loss-making year”) the person makes a loss in a UK
property business or overseas property business (whether carried on
alone or in partnership), and

Income Tax Bill
Part 4 — Loss relief
Chapter 4 — Losses from property businesses
60

(b)
the loss has a capital allowances connection or the business has a
relevant agricultural connection.
(2)
The claim is for the applicable amount of the loss to be deducted in calculating
the person’s net income—
(a)
for the loss-making year, or
5
(b)
for the next tax year.

(See Step 2 of the calculation in section 23.)
(3)
The claim must specify the tax year for which the deduction is to be made.
(4)
But if the applicable amount of the loss is not deducted in full in giving effect
to a claim for the specified tax year, the person may make a separate claim for
10
property loss relief against general income for the other tax year.
(5)
For this purpose “the other tax year” means the tax year which was not
specified in the claim already made, but which could have been specified.
(6)
This section needs to be read with—
(a)
section 121 (how relief works),
15
(b)
section 122 (meaning of “the applicable amount of the loss”),
(c)
section 123 (meaning of “the loss has a capital allowances connection”
and “the business has a relevant agricultural connection”), and
(d)
section 124 (supplementary).
121
How relief works
20
(1)
This subsection explains how the deductions are to be made.

The amount of the applicable amount of the loss to be deducted at any step is
limited in accordance with section 25(4) and (5).


Step 1
25

Deduct the applicable amount of the loss in calculating the person’s net income
for the specified tax year.


Step 2

This step applies if the applicable amount of the loss has not been deducted in
30
full and the person makes a separate claim for the other tax year.

Deduct the part of the applicable amount of the loss not deducted at Step 1 in
calculating the person’s net income for the other tax year.


Other relief
35

If the applicable amount of the loss has not been deducted in full at Steps 1 and
2, relief is given under section 118 for the part not so deducted.
(2)
There is a priority rule if—
(a)
a person makes a claim for property loss relief against general income
(“the prior claim”) in respect of a loss made in a tax year,
40
(b)
the prior claim specifies the next tax year as the one for which the
deduction is to be made (“the relevant tax year”),
(c)
the person makes another claim for property loss relief against general
income in respect of a loss made in the relevant tax year, and

Income Tax Bill
Part 4 — Loss relief
Chapter 4 — Losses from property businesses
61

(d)
that other claim also specifies the relevant tax year as the one for which
the deduction is to be made.
(3)
The rule is that priority is given to making deductions under the prior claim.
122
Meaning of “the applicable amount of the loss”
(1)
This section defines “the applicable amount of the loss” for the purposes of
5
sections 120 and 121.
(2)
“The applicable amount of the loss” is—
(a)
the amount of the loss, or
(b)
if less, the amount arising from the relevant connection (see subsections
(3) to (5)).
10
(3)
If—
(a)
the loss has a capital allowances connection, but
(b)
the business does not have a relevant agricultural connection,

the amount arising from the relevant connection is the amount (“the net capital
allowances”) by which the capital allowances exceed the charges under CAA
15
2001.
(4)
If—
(a)
the business has a relevant agricultural connection, but
(b)
the loss does not have a capital allowances connection,

the amount arising from the relevant connection is the amount of the allowable
20
agricultural expenses.
(5)
If—
(a)
the loss has a capital allowances connection, and
(b)
the business has a relevant agricultural connection,

the amount arising from the relevant connection is the sum of the net capital
25
allowances and the amount of the allowable agricultural expenses.
123
Meaning of “the loss has a capital allowances connection” and “the business
has a relevant agricultural connection”
(1)
This section applies for the purposes of sections 120 and 122.
(2)
The loss has a capital allowances connection if, in calculating the loss—
30
(a)
the amount of the capital allowances treated as expenses of the
business, exceeds
(b)
the amount of any charges under CAA 2001 treated as receipts of the
business.
(3)
The business has a relevant agricultural connection if—
35
(a)
the business is carried on in relation to land that consists of or includes
an agricultural estate, and
(b)
allowable agricultural expenses deducted in calculating the loss are
attributable to the estate.
(4)
“Agricultural estate” means land—
40
(a)
which is managed as one estate, and
(b)
which consists of or includes land occupied wholly or mainly for
purposes of husbandry.

Income Tax Bill
Part 4 — Loss relief
Chapter 4 — Losses from property businesses
62

(5)
“Allowable agricultural expenses”, in relation to an agricultural estate, means
any expenses attributable to the estate which are deductible—
(a)
in respect of maintenance, repairs, insurance or management of the
estate, and
(b)
otherwise than in respect of interest payable on a loan.
5
(6)
But expenses attributable to the parts of the estate used wholly for purposes
other than those of husbandry are to be ignored.
(7)
And if parts of the estate are used both—
(a)
for purposes of husbandry, and
(b)
for other purposes,
10

the expenses in respect of those parts are to be reduced so far as those parts are
used for the other purposes.
124
Supplementary
(1)
A claim for property loss relief against general income must be made on or
before the first anniversary of the normal self-assessment filing date for the tax
15
year specified in the claim.
(2)
If a loss has previously been carried forward under section 118, the claim must
be accompanied by the amendments of any return made under—
(a)
section 8 of TMA 1970, or
(b)
section 8A of TMA 1970,
20

that are necessary to give effect to section 118(5) (reducing the amount of the
loss carried forward (if necessary, to nil)).
Post-cessation property relief
125
Post-cessation property relief
(1)
A person may make a claim for post-cessation property relief if, after
25
permanently ceasing to carry on a UK property business (whether carried on
alone or in partnership)—
(a)
the person makes a qualifying payment, or
(b)
a qualifying event occurs in relation to a debt owed to the person,

and the payment is made, or the event occurs, within 7 years of that cessation.
30
(2)
If the claim is made in respect of a payment, the claim is for the payment to be
deducted in calculating the person’s net income for the tax year in which the
payment is made (see Step 2 of the calculation in section 23).
(3)
If the claim is made in respect of an event, the claim is for the appropriate
amount of the debt to be deducted in calculating the person’s net income for
35
the relevant tax year (see Step 2 of the calculation in section 23).
(4)
The claim must be made on or before the first anniversary of the normal self-
assessment filing date for the tax year for which the deduction is to be made.
(5)
If—
(a)
the person is a company within the charge to income tax under Chapter
40
3 of Part 3 of ITTOIA 2005 in respect of a UK property business, and

Income Tax Bill
Part 4 — Loss relief
Chapter 4 — Losses from property businesses
63

(b)
the company ceases at any time to be within that tax charge in respect
of the business,

the company is treated for the purposes of this section as permanently ceasing
to carry on the business at that time.
(6)
The following provisions apply for the purposes of post-cessation property
5
relief as they apply for the purposes of post-cessation trade relief (but as if any
reference to a trade were to a UK property business)—
(a)
section 97 (meaning of “qualifying payment”),
(b)
section 98 (meaning of “qualifying event” etc),
(c)
section 99 (reduction of relief for unpaid trade expenses), and
10
(d)
section 100 (prohibition against double counting).
126
Treating excess post-cessation property relief as CGT loss
A person who cannot deduct all of an amount under a claim for post-cessation
property relief may be able to treat the unused part as an allowable loss for
capital gains tax purposes: see sections 261D and 261E of TCGA 1992.
15
Furnished holiday accommodation
127
UK furnished holiday lettings business treated as trade
(1)
This section applies if, in a tax year, a person carries on a UK furnished holiday
lettings business.
(2)
“UK furnished holiday lettings business” means a UK property business which
20
consists of, or so far as it includes, the commercial letting of furnished holiday
accommodation (within the meaning of Chapter 6 of Part 3 of ITTOIA 2005).
(3)
For the purposes of this Part (but as modified below) the person is treated
instead as carrying on in the tax year a single trade—
(a)
which consists of every commercial letting of furnished holiday
25
accommodation comprised in the person’s UK furnished holiday
lettings business, and
(b)
the profits of which are chargeable to income tax.
(4)
Chapter 2 applies as if section 75 (trade leasing allowances given to
individuals) were omitted.
30
(5)
Early trade losses relief is not available to an individual for a loss made in a tax
year if the individual first let any of the relevant accommodation as furnished
accommodation more than 3 years before the beginning of the tax year.
(6)
Accommodation is relevant if the trade that is treated as carried on in the tax
year consists of or includes the letting of the accommodation.
35
(7)
If there is a letting of accommodation only part of which is furnished holiday
accommodation, just and reasonable apportionments are to be made for the
purpose of determining what is comprised in the trade treated as carried on.

Income Tax Bill
Part 4 — Loss relief
Chapter 5 — Losses in an employment or office
64

Chapter 5
Losses in an employment or office
128
Employment loss relief against general income
(1)
A person may make a claim for employment loss relief against general income
if the person—
5
(a)
is in employment or holds an office in a tax year, and
(b)
makes a loss in the employment or office in the tax year (“the loss-
making year”).
(2)
The claim is for the loss to be deducted in calculating the person’s net income—
(a)
for the loss-making year,
10
(b)
for the previous tax year, or
(c)
for both tax years.

(See Step 2 of the calculation in section 23.)
(3)
If the claim is made in relation to both tax years, the claim must specify the year
for which a deduction is to be made first.
15
(4)
Otherwise the claim must specify either the loss-making year or the previous
tax year.
(5)
The claim must be made on or before the first anniversary of the normal self-
assessment filing date for the loss-making year.
(6)
Nothing in this section prevents a person who makes a claim specifying a
20
particular tax year in respect of a loss from making a further claim specifying
the other tax year in respect of the unused part of the loss.
(7)
This Chapter is subject to paragraph 2 of Schedule 1B to TMA 1970 (claims for
loss relief involving two or more years).
(8)
This section needs to be read with section 129 (how relief works).
25
129
How relief works
(1)
This subsection explains how the deductions are to be made.

The amount of the loss to be deducted at any step is limited in accordance with
section 25(4) and (5).

30

Step 1

Deduct the loss in calculating the person’s net income for the specified tax year.


Step 2

This step applies only if the claim is made in relation to both tax years.
35

Deduct the part of the loss not deducted at Step 1 in calculating the person’s
net income for the other tax year.
(2)
There is a priority rule if a person—
(a)
makes a claim for employment loss relief against general income (“the
first claim”) in relation to the loss-making year, and
40
(b)
makes a separate claim in respect of a loss made in the following tax
year in relation to the same tax year as the first claim.

Income Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares
65

(3)
The rule is that priority is given to making deductions under the first claim.
(4)
For this purpose a “separate claim” means—
(a)
a claim for employment loss relief against general income, or
(b)
a claim for trade loss relief against general income (see sections 64 to
70).
5
130
Treating loss in employment or office as CGT loss
A person who cannot deduct all of a loss in an employment or office under a
claim for employment loss relief against general income may be able to treat
the unused part as an allowable loss for capital gains tax purposes: see sections
261B and 261C of TCGA 1992.
10
Chapter 6
Losses on disposal of shares
Share loss relief against general income
131
Share loss relief
(1)
An individual is eligible for relief under this Chapter (“share loss relief”) if—
15
(a)
the individual incurs an allowable loss for capital gains tax purposes on
the disposal of any shares in any tax year (“the year of the loss”), and
(b)
the shares are qualifying shares.

This is subject to subsections (3) and (4) and section 136(2).
(2)
Shares are qualifying shares for the purposes of this Chapter if—
20
(a)
EIS relief is attributable to them, or
(b)
if EIS relief is not attributable to them, they are shares in a qualifying
trading company which have been subscribed for by the individual.
(3)
Subsection (1) applies only if the disposal of the shares is—
(a)
by way of a bargain made at arm’s length,
25
(b)
by way of a distribution in the course of dissolving or winding up the
company,
(c)
a disposal within section 24(1) of TCGA 1992 (entire loss, destruction
dissipation or extinction of asset), or
(d)
a deemed disposal under section 24(2) of that Act (claim that value of
30
the asset has become negligible).
(4)
Subsection (1) does not apply to any allowable loss incurred on the disposal
if—
(a)
the shares are the subject of an exchange or arrangement of the kind
mentioned in section 135 or 136 of TCGA 1992 (company
35
reconstructions etc), and
(b)
because of section 137 of that Act, the exchange or arrangement
involves a disposal of the shares.