Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 4 — Property income
Chapter 2 — Property businesses
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204
Meaning of “property business”
(1)
In this Act “property business” means a UK property business or an overseas
property business.
(2)
References in this Act to a property business are to a property business so far
as any profits of the business are chargeable to tax under Chapter 3 (as to which
5
see, in particular, the rules about territorial scope in section 5).
(3)
Accordingly, nothing in Chapter 4 or 5 is to be read as treating an amount as a
receipt of a property business if the profits concerned would not be chargeable
to tax under Chapter 3.
Basic meaning of UK and overseas property business
10
205
UK property business
A company’s UK property business consists of—
(a)
every business which the company carries on for generating income
from land in the United Kingdom, and
(b)
every transaction which the company enters into for that purpose
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otherwise than in the course of such a business.
206
Overseas property business
A company’s overseas property business consists of—
(a)
every business which the company carries on for generating income
from land outside the United Kingdom, and
20
(b)
every transaction which the company enters into for that purpose
otherwise than in the course of such a business.
Generating income from land
207
Meaning of “generating income from land”
(1)
In this Chapter “generating income from land” means exploiting an estate,
25
interest or right in or over land as a source of rents or other receipts.
(2)
“Rents” includes payments by a tenant for work to maintain or repair leased
premises which the lease does not require the tenant to carry out.
(3)
“Other receipts” includes—
(a)
payments in respect of a licence to occupy or otherwise use land,
30
(b)
payments in respect of the exercise of any other right over land, and
(c)
rentcharges and other annual payments reserved in respect of, or
charged on or issuing out of, land.
(4)
For the purposes of this section a right to use a caravan or houseboat at only
one location is treated as a right deriving from an estate or interest in land.
35
208
Activities not for generating income from land
For the purposes of this Chapter the following activities are not carried on for
generating income from land—

Corporation Tax Bill
Part 4 — Property income
Chapter 3 — Profits of property businesses: basic rules
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(a)
farming or market gardening in the United Kingdom (but see section 36
(UK farming or market gardening treated as trade)),
(b)
any other occupation of land (but see section 38 (certain commercial
occupation of UK land treated as trade)), and
(c)
activities for the purposes of a concern to which section 39 applies
5
(profits of mines, quarries etc).
Chapter 3
Profits of property businesses: basic rules
Charge to tax on profits of a property business
209
Charge to tax on profits of a property business
10
The charge to corporation tax on income applies to the profits of a property
business.
Calculation of profits
210
Profits of a property business: application of trading income rules
(1)
The profits of a property business are calculated in the same way as the profits
15
of a trade.
(2)
But the provisions of Part 3 (trading income) which apply as a result of
subsection (1) are limited to the following—

In Chapter 3 (basic rules)—

section 46
generally accepted accounting practice

20

section 47
losses calculated on same basis as profits

section 48
receipts and expenses

section 52
apportionment etc of profits and losses to

accounting period

In Chapter 4 (rules restricting deductions)—

25

section 53
capital expenditure

section 54
expenses not wholly and exclusively for

trade and unconnected losses

section 55
bad debts

sections 56 to 58
car or motor cycle hire

30

section 59
patent royalties

In Chapter 5 (rules allowing deductions)—

section 61
pre-trading expenses

Corporation Tax Bill
Part 4 — Property income
Chapter 3 — Profits of property businesses: basic rules
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section 68
replacement and alteration of trade tools

section 69
payments for restrictive undertakings

sections 70 and 71
seconded employees

section 72
payroll deduction schemes: contributions

to agents’ expenses

5

sections 73 to 75
counselling and retraining expenses

sections 76 to 81
redundancy payments etc

sections 82 to 86
contributions to local enterprise

organisations or urban regeneration

companies

10

sections 87 and 88
scientific research

sections 89 and 90
expenses connected with patents, designs

and trade marks

section 91
payments to Export Credits Guarantee

Department

15

section 92
levies under FISMA 2000

In Chapter 6 (receipts)—

section 93
capital receipts

section 94
debts incurred and later released

section 101
distribution of assets of mutual concerns

20

section 102
industrial development grants

section 103
sums recovered under insurance policies

etc

section 104
repayments under FISMA 2000

In Chapter 7 (gifts to charities etc)—

25

section 108
receipt of benefits by donor or connected

person

In Chapter 9 (other specific trades)—

section 131
incidental costs of issuing qualifying

shares (building societies)

30

section 133
annual payments paid by a credit union

In Chapter 12 (deductions from profits)—

sections 172 to 175
unremittable amounts

Corporation Tax Bill
Part 4 — Property income
Chapter 3 — Profits of property businesses: basic rules
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Loan relationships and derivative contracts
(1)
The profits of a property business are calculated without regard to items giving
rise to—
(a)
credits or debits within Part 5 (loan relationships), or
(b)
credits or debits within Part 7 (derivative contracts).
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(2)
This section does not affect the width of the provision made by—
(a)
section 464 (priority of Part 5 for corporation tax purposes), or
(b)
section 699 (priority of Part 7 for corporation tax purposes).
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Items treated as receipts and expenses
The rules for calculating the profits of a property business need to be read
10
with—
(a)
the provisions of CAA 2001 which treat allowances as receipts of a
property business,
(b)
the provisions of CAA 2001 which treat charges as expenses of a
property business, and
15
(c)
section 748 (credits and debits in respect of an intangible fixed asset
held by a company for the purposes of a property business carried on
by it treated as receipts and expenses of the business).
213
Certain amounts brought into account under Part 3
(1)
The rules for calculating the profits of a property business need to be read with
20
the following provisions of Part 3 (trading income)—
(a)
section 42 (tied premises),
(b)
section 43 (caravan sites where trade carried on),
(c)
section 44 (surplus business accommodation), and
(d)
section 45(3) (payments for wayleaves).
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(2)
Those provisions secure that amounts which would otherwise be brought into
account in calculating the profits of the business are, or may be, brought into
account instead in calculating the profits of a trade.
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Relationship between rules prohibiting and allowing deductions
(1)
Any relevant permissive rule in this Part—
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(a)
has priority over any relevant prohibitive rule, but
(b)
is subject to the following provisions—
(i)
section 56 (car or motor cycle hire), as applied by section 210,
(ii)
section 1288 (unpaid remuneration),
(iii)
section 1290 (employee benefit contributions),
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(iv)
section 1304 (crime-related payments).
(2)
In this section “any relevant permissive rule in this Part” means any provision
of this Part (apart from sections 231 to 234) which allows a deduction in
calculating the profits of a property business.
(3)
In this section “any relevant prohibitive rule”, in relation to any deduction,
40
means any provision of this Part or Chapter 1 of Part 20 (apart from those
mentioned in subsection (1)(b)) which might otherwise be read as—

Corporation Tax Bill
Part 4 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc
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(a)
prohibiting or deferring the deduction, or
(b)
restricting the amount of the deduction.
(4)
In this section any reference to any provision of this Part includes any
provision applied by section 210.
Chapter 4
5
Profits of property businesses: lease premiums etc
Introduction
215
Overview of Chapter
(1)
This Chapter provides for certain amounts (which would otherwise generally
be amounts of a capital nature) to be brought into account as receipts in
10
calculating the profits of a property business.
(2)
The amounts relate to short-term leases in the case of—
section 217 (lease premiums),
section 218 (amount treated as lease premium where work required),
section 220 (sums payable for surrender of lease), and
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section 222 (assignments for profit of lease granted at undervalue).
(3)
The amounts relate to any lease in the case of—
section 219 (sums payable instead of rent), and
section 221 (sums payable for variation or waiver of terms of lease).
(4)
The amounts relate to the sale of any estate or interest in land in the case of—
20
section 224 (sales with right to reconveyance), and
section 225 (sale and leaseback transactions).
(5)
This Chapter also permits certain deductions in calculating the profits of
property businesses carried on by tenants under certain leases (see sections 231
and 232).
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216
Meaning of “short-term lease”
In this Chapter “short-term lease” means a lease whose effective duration is 50
years or less.
Amounts treated as receipts: leases
217
Lease premiums
30
(1)
This section applies if a premium is required to be paid—
(a)
under a short-term lease, or
(b)
otherwise under the terms subject to which a short-term lease is
granted.
(2)
The company to which the premium is due is treated as—
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Corporation Tax Bill
Part 4 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc
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(a)
entering into a transaction mentioned in section 205 (if the land to
which the lease relates is in the United Kingdom) or section 206 (if that
land is outside the United Kingdom), and
(b)
receiving the amount calculated under subsections (4) and (5) as a
result of that transaction.
5
(3)
That amount is brought into account as a receipt in calculating the profits of the
property business which consists of or includes that transaction for the
accounting period in which the lease is granted.
(4)
The amount of the receipt is given by the formula—

where—
10
P is the premium, and
Y is the number of complete periods of 12 months (other than the first)
comprised in the effective duration of the lease.
(5)
But, if the rule in section 228 (the additional calculation rule) applies, the
amount given by the formula in subsection (4) is reduced by the amount
15
calculated in accordance with section 228.
218
Amount treated as lease premium where work required
(1)
This section applies if the terms subject to which a lease is granted impose on
the tenant an obligation to carry out work on the premises.
(2)
The lease is treated for the purposes of section 217 (lease premiums) as
20
requiring the payment of a premium to the landlord (in addition to any other
premium).
(3)
The amount of the premium is the amount by which the value of the landlord’s
estate or interest immediately after the commencement of the lease exceeds
what its value would have been at that time if the terms of the lease did not
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impose the obligation on the tenant.
(4)
An obligation, or part of an obligation, that requires the carrying out of
excepted work is ignored for the purposes of this section.
(5)
Work is “excepted work” if the payment for carrying it out would, if the
landlord and not the tenant were obliged to carry it out, be deductible as an
30
expense in calculating the profits of the landlord’s property business.
219
Sums payable instead of rent
(1)
This section applies if—
(a)
under the terms subject to which a lease is granted a sum becomes
payable by the tenant instead of the whole or a part of the rent for a
35
period, and
(b)
the period is 50 years or less.
(2)
The company to which the sum is due is treated as—

Corporation Tax Bill
Part 4 — Property income
Chapter 4 — Profits of property businesses: lease premiums etc
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(a)
entering into a transaction mentioned in section 205 (if the land to
which the lease relates is in the United Kingdom) or section 206 (if that
land is outside the United Kingdom), and
(b)
receiving the amount calculated under subsections (4) and (5) as a
result of that transaction.
5
(3)
That amount is brought into account as a receipt in calculating the profits of the
property business which consists of or includes that transaction for the
accounting period in which the sum becomes payable.
(4)
The amount of the receipt is given by the formula—

where—
10
S is the sum payable instead of rent, and
Y is the number of complete periods of 12 months (other than the first)
comprised in the period in relation to which the sum is payable.
(5)
But, if the rule in section 228 (the additional calculation rule) applies, the
amount given by the formula in subsection (4) is reduced by the amount
15
calculated in accordance with section 228.
(6)
In determining for the purposes of this Chapter the duration of the period in
relation to which the sum is payable, any part of the period that falls after the
expiry of the effective duration of the lease is excluded.
220
Sums payable for surrender of lease
20
(1)
This section applies if, under the terms subject to which a short-term lease is
granted, a sum becomes payable by the tenant as consideration for the
surrender of the lease.
(2)
The company to which the sum is due is treated as—
(a)
entering into a transaction mentioned in section 205 (if the land to
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which the lease relates is in the United Kingdom) or section 206 (if that
land is outside the United Kingdom), and
(b)
receiving the amount calculated under subsections (4) and (5) as a
result of that transaction.
(3)
That amount is brought into account as a receipt in calculating the profits of the
30
property business which consists of or includes that transaction for the
accounting period in which the sum becomes payable.
(4)
The amount of the receipt is given by the formula—

where—
S is the sum payable as consideration for the surrender of the lease, and
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Y is the number of complete periods of 12 months (other than the first)
comprised in the effective duration of the lease.