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
61

122
Meaning of “the applicable amount of the loss”
(1)
This section defines “the applicable amount of the loss” for the purposes of
sections 120 and 121.
(2)
“The applicable amount of the loss” is—
(a)
the amount of the loss, or
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(b)
if less, the amount arising from the relevant connection (see subsections
(3) to (5)).
(3)
If—
(a)
the loss has a capital allowances connection, but
(b)
the business does not have a relevant agricultural connection,
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the amount arising from the relevant connection is the amount (“the net capital
allowances”) by which the capital allowances exceed the charges under CAA
2001.
(4)
If—
(a)
the business has a relevant agricultural connection, but
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(b)
the loss does not have a capital allowances connection,

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

the amount arising from the relevant connection is the sum of the net capital
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”
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(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—
(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
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business.
(3)
The business has a relevant agricultural connection if—
(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
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attributable to the estate.
(4)
“Agricultural estate” means land—
(a)
which is managed as one estate, and
(b)
which consists of or includes land occupied wholly or mainly for
purposes of husbandry.
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(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

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

(b)
otherwise than in respect of interest payable on a loan.
(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
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(b)
for other purposes,

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
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before the first anniversary of the normal self-assessment filing date for the tax
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
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(b)
section 8A of TMA 1970,

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
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(1)
A person may make a claim for post-cessation property relief if, after
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,
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and the payment is made, or the event occurs, within 7 years of that cessation.
(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
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amount of the debt to be deducted in calculating the person’s net income for
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—
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(a)
the person is a company within the charge to income tax under Chapter
3 of Part 3 of ITTOIA 2005 in respect of a UK property business, and
(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
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to carry on the business at that time.

Income Tax Bill
Part 4 — Loss relief
Chapter 5 — Losses in an employment or office
63

(6)
The following provisions apply for the purposes of post-cessation property
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),
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(c)
section 99 (reduction of relief for unpaid trade expenses), and
(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
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capital gains tax purposes: see sections 261D and 261E of TCGA 1992.
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.
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(2)
“UK furnished holiday lettings business” means a UK property business which
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—
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(a)
which consists of every commercial letting of furnished holiday
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
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individuals) were omitted.
(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
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year consists of or includes the letting of the accommodation.
(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.
Chapter 5
35
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—

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

(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,
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(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.
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(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
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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).
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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).
Step 1
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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.

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