Corporation Tax Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 4 — Property income
Chapter 5 — Profits of property businesses: other rules about receipts and deductions
116

(a)
no apportionment is made to an accounting period which ends before
the expenditure is incurred, and
(b)
if the person is entitled to the deduction because of a transfer dealt with
by section 255, no apportionment is made to an accounting period
which ends before the transfer takes place.
5
(6)
In the case of the transfer of an interest in the premises dealt with by section
255, this section applies as if the reference to the person in subsection (2) above
included the transferor and the transferee.
(7)
No deduction is allowed for any expenditure in respect of which a capital
allowance has been made.
10
255
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—
15
(a)
the transferor and the transferee are entitled to a part of any deduction
under section 254, 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
20
deduction under section 254 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 254.
(5)
If the interest transferred is in part of the premises—
25
(a)
the transferor and the transferee are entitled to a part of any deduction
under section 254, 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 256 (ending of lease of premises) and
30
257 (transfer involving person within the charge to income tax).
256
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.
35
(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).
40
257
Transfer involving person within the charge to income tax
(1)
This section explains how section 255 works if—

Corporation Tax Bill
Part 4 — Property income
Chapter 5 — Profits of property businesses: other rules about receipts and deductions
117

(a)
the transferor is a company within the charge to corporation tax and the
transferee is a person within the charge to income tax, or
(b)
the transferor is a person within the charge to income tax and the
transferee is a company within the charge to corporation tax.
(2)
Section 255 applies only for the purpose of determining—
5
(a)
whether the company within the charge to corporation tax is entitled to
a deduction (or part of a deduction) under section 254, and
(b)
the amount of any such deduction.
(3)
Accordingly, any reference to—
(a)
whether a person is entitled to a deduction (or part of a deduction)
10
under section 254, or
(b)
the amount of any such deduction,

is ignored if the person is within the charge to income tax.
(4)
For any entitlement of a person within the charge to income tax to a deduction
for any of the expenditure, see sections 316 to 318 of ITTOIA 2005
15
(corresponding income tax provisions).
Mineral royalties
258
Relief in respect of mineral royalties
(1)
This section applies if in an accounting period a UK resident company carries
on a UK property business the receipts of which consist of or include mineral
20
royalties—
(a)
which the company is entitled to receive under a mineral lease or
agreement, and
(b)
which are not chargeable to tax under Chapter 7 (rent receivable in
connection with a UK section 39(4) concern).
25
(2)
In calculating the profits of the business, the company is treated as—
(a)
entitled to receive only half of the total of the mineral royalties arising
under the lease or agreement in the accounting period, and
(b)
making in the accounting period only half of the total of the payments
made in respect of the management of the property concerned.
30
(3)
Sections 274 to 276 (meaning of “mineral lease or agreement” and “mineral
royalties”) apply for the purposes of this section as they apply for the purposes
of Chapter 7.
(4)
See also section 201 of TCGA 1992 (gains treated as accruing to a company
entitled to receive mineral royalties).
35
Apportionments on sale of land
259
Nature of item apportioned on sale of estate or interest in land
(1)
This section applies if—
(a)
a company sells an estate or interest in land,
(b)
on the sale a part of a receipt or outgoing in respect of the estate or
40
interest is apportioned to the seller, and

Corporation Tax Bill
Part 4 — Property income
Chapter 5 — Profits of property businesses: other rules about receipts and deductions
118

(c)
the receipt or outgoing is receivable or to be paid by the buyer after the
apportionment is made.
(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
5
260
Mutual business
(1)
Nothing in this Part is to be read as applying the rules relating to mutual
business to property businesses.
(2)
Accordingly, receipts and expenses are to be brought into account in
calculating the profits of a company’s property business even if a relationship
10
of mutuality exists between that company and another person.
(3)
Nothing in this section affects the operation of section 488 of ICTA (co-
operative housing associations).
Adjustment on change of basis
261
Adjustment on change of basis
15
(1)
Section 262 applies if—
(a)
a company 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 corporation tax purposes,
(b)
the old basis accorded with the law or practice applicable in relation to
20
the period of account before the change, and
(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
25
for corporation tax purposes.
(3)
Subsections (3) to (6) of section 180 (what is meant by a company 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).
30
262
Giving effect to positive and negative adjustments
(1)
An amount by way of adjustment must be calculated in accordance with
section 182, 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—
35
(a)
the amount is brought into account as a receipt in calculating the profits
of the UK property business, and
(b)
the receipt is treated as arising on the first day of the first period of
account for which the new basis is adopted.

Corporation Tax Bill
Part 4 — Property income
Chapter 6 — Commercial letting of furnished holiday accommodation
119

(3)
But if there is a change of basis resulting from a tax adjustment affecting the
calculation of any amount brought into account in respect of depreciation, the
receipt is treated as arising only when the asset to which it relates is realised or
written off.
(4)
If the amount produced by the calculation is negative—
5
(a)
a deduction is allowed for the amount as an expense of the UK property
business in calculating the profits of that business, and
(b)
the expense is treated as arising on the first day of the first period of
account for which the new basis is adopted.
(5)
But if there is a change of basis resulting from a tax adjustment affecting the
10
calculation of any amount brought into account in respect of depreciation, the
expense is treated as arising only when the asset to which it relates is realised
or written off.
(6)
This section is subject to section 183 (no adjustment for certain expenses
previously brought into account) which applies in relation to a UK property
15
business as it applies in relation to a trade.
Integral features
263
Expenditure on integral features
Section 33A(3) of CAA 2001 provides that no deduction is allowed in respect of
certain expenditure on an integral feature of a building or structure (within the
20
meaning of that section).
Chapter 6
Commercial letting of furnished holiday accommodation
Introduction
264
Overview of Chapter
25
(1)
This Chapter explains for the purposes of this Part what is meant by the
commercial letting of furnished holiday accommodation (see sections 265 to
268).
(2)
It matters whether a UK property business consists of or includes the
commercial letting of furnished holiday accommodation for the purposes of—
30
(a)
Chapter 2 of Part 10 of ICTA (loss relief: see section 503 of that Act),
(b)
certain provisions of TCGA 1992 (see section 241 of that Act), and
(c)
CAA 2001 (see, for example, sections 248 and 249 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
35
property business to be calculated separately (see section 269).