Taxation (International and Other Provisions) Bill

House of Commons

Session 2009 - 10
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Taxation (International and Other Provisions) Bill

Taxation (International and Other Provisions) Bill
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Relief: restriction and carrying forward
681AD
Relevant income tax relief: deduction not to exceed commercial rent
(1)
The rules in subsection (3) apply to the calculation of the deduction
by way of relevant income tax relief allowed in a relevant period—
(a)
for the non-excluded element of the payment within section
5
681AA(1) or 681AB(1), or
(b)
if there are two or more such payments, for the non-excluded
elements of those payments.
(2)
For the purposes of this section—
(a)
in relation to a deduction within section 681AC(1)(a)
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“relevant period” means—
(i)
a period of account of the trade, profession or
vocation concerned, or
(ii)
if no accounts of the trade, profession or vocation are
drawn up for a period, the basis period of a tax year,
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(b)
in relation to a deduction within section 681AC(1)(b) or (c)
“relevant period” means—
(i)
a period of account of the business or person
concerned, or
(ii)
if no accounts of the business are drawn up for a
20
period or the person does not draw up accounts for a
period, a tax year, and
(c)
the non-excluded element of a payment is the element of the
payment not excluded under section 681AI (service charges
etc).
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(3)
The rules are—

Rule 1 —meaning of amount E

For any relevant period, amount E (which may be nil) is the expense
or total expenses to be brought, in accordance with generally
accepted accounting practice, into account in the period in respect
30
of—
(a)
the non-excluded element of the payment, or
(b)
the non-excluded elements of the payments.

Rule 2 — calculations

For every relevant period—
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(a)
calculate the total of amount E for the period and amount E
for every previous relevant period ending on or after the date
of the transfer mentioned in section 681AA(1)(a) or
681AB(1)(a),
(b)
calculate the total of the deductions by way of relevant
40
income tax relief for every previous relevant period ending
on or after the date of that transfer, and
(c)
subtract the total at (b) from the total at (a) to give the
cumulative unrelieved expenses for the period.

Rule 3 — meaning of post-spread period
45

A relevant period is a post-spread period if for that relevant period,
and every later relevant period, there are no payments within section
681AA(1) or 681AB(1).

Rule 4 — the deduction allowed in a relevant period

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If a relevant period is not a post-spread period, the deduction
allowed for the period is equal to the cumulative unrelieved
expenses for the period, but is the commercial rent for the period if
that is less (see section 681AJ or 681AK).

Rule 5 — relevant periods in which no deduction allowed
5

If a relevant period is a post-spread period, no deduction is allowed
for the period.
Certain deductions from earnings: restriction and carrying forward of relief
681AE
Deduction from earnings not to exceed commercial rent
(1)
Subsection (3) applies to the calculation of the relevant deduction
10
from earnings allowed for the non-excluded element of the payment
within section 681AA(2) or 681AB(2).
(2)
For the purposes of this section the non-excluded element of a
payment is the element of the payment not excluded under section
681AI (service charges etc).
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(3)
The deduction must not exceed the commercial rent for the period
for which the payment is made (see section 681AJ or 681AK).
681AF
Carrying forward parts of payments
(1)
This section applies if—
(a)
section 681AE has effect, and
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(b)
conditions A and B are met.
(2)
Condition A is that under section 681AE part of a payment which
would otherwise be allowed as a relevant deduction from earnings
is not allowed.
(3)
Condition B is that one or more later payments are made, by the
25
transferor or a person associated with the transferor, under—
(a)
the lease (if section 681AE has effect because of section
681AA(2)), or
(b)
the rentcharge or other transaction mentioned in section
681AB(2)(b) (if section 681AE has effect because of section
30
681AB(2)).
(4)
The part of the payment mentioned in subsection (2) may be carried
forward and treated for the purposes of a relevant deduction from
earnings as if it were made—
(a)
when the next of the later payments is made, and
35
(b)
for the period for which that later payment is made.
(5)
So far as a part of a payment carried forward under this section is not
allowed as a relevant deduction from earnings, it may be carried
forward again under this section.
681AG
Aggregation and apportionment of payments
40
(1)
This section applies for the purposes of section 681AE.
(2)
If more than one payment is made for the same period, the payments
must be taken together.

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(3)
If payments are made for periods which overlap—
(a)
the payments must be apportioned, and
(b)
the apportioned payments which belong to the common part
of the overlapping periods must be taken together.
(4)
References in subsections (2) and (3) to payments include references
5
to parts of payments which under section 681AF are treated as if
made later than they were made.
681AH
Payments made for later periods
(1)
This section applies for the purposes of sections 681AE to 681AG.
(2)
For the purposes of this section the relevant year (in relation to a
10
payment) is the year which begins with the date it is made.
(3)
If a payment is made for a period all of which is after the relevant
year, it must be treated as made for the relevant year.
(4)
If a payment is made for a period part of which is after the relevant
year, it must be treated as if a corresponding part of it was made for
15
the relevant year (and no part for a later period).
Interpretation etc
681AI
Exclusion of service charges etc
(1)
This section applies for the purposes of sections 681AD and 681AE.
(2)
A payment must be excluded so far as it is in respect of any of the
20
following—
(a)
services,
(b)
the use of relevant assets, and
(c)
rates usually borne by the tenant.
(3)
The amount excluded must be just and reasonable.
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(4)
If a lease or agreement contains provisions fixing the payments or
parts of payments which are in respect of services or the use of assets,
those provisions are not conclusive.
(5)
A relevant asset is any description of property or rights other than
land or an interest in land.
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681AJ
Commercial rent: comparison with rent under a lease
(1)
Subsection (3) applies—
(a)
for the purpose of making a comparison under rule 4 of
section 681AD(3) if section 681AD has effect because of
section 681AA(1), and
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(b)
for the purpose of making a comparison under section
681AE(3) if section 681AE has effect because of section
681AA(2).
(2)
In this section “the actual lease” means the lease mentioned in section
681AA(1)(b) or (2)(b).
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(3)
The commercial rent is the rent which might be expected to be paid
under a lease, of the land in respect of which the payment mentioned
in section 681AA(1)(b) or (2)(b) is made, which—
(a)
was negotiated in the open market when the actual lease was
created,
5
(b)
is of the same duration as the actual lease,
(c)
is subject to the terms and conditions of the actual lease as
respects liability for maintenance and repairs, and
(d)
provides for rent payable at uniform intervals and at an
appropriate rate.
10
(4)
Rent is payable at an appropriate rate if—
(a)
it is payable at a uniform rate, or
(b)
in a case where the rent payable under the actual lease is rent
at a progressive rate (and such that the amount of rent
payable for a year is never less than the amount payable for a
15
previous year), it progresses by gradations proportionate to
those provided by the actual lease.
681AK
Commercial rent: comparison with payments other than rent
(1)
Subsection (2) applies—
(a)
for the purpose of making a comparison under rule 4 of
20
section 681AD(3) if section 681AD has effect because of
section 681AB(1), and
(b)
for the purpose of making a comparison under section
681AE(3) if section 681AE has effect because of section
681AB(2).
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(2)
The commercial rent is the rent which might be expected to be paid
under a lease, of the land in respect of which the payment mentioned
in section 681AB(1)(b) or (2)(b) is made, which—
(a)
was negotiated in the open market when the rentcharge or
other transaction mentioned in section 681AB(1)(b) or (2)(b)
30
was effected,
(b)
is a tenant’s repairing lease, and
(c)
is of an appropriate duration.
(3)
A tenant’s repairing lease is a lease where the lessee is under an
obligation to maintain and repair the whole (or substantially the
35
whole) of the premises comprised in the lease.
(4)
To see whether a lease is of an appropriate duration, take the period
over which payments are to be made under the rentcharge or other
transaction, and—
(a)
if that period is 200 years or more (or the obligation to make
40
the payments is perpetual) an appropriate duration is 200
years, or
(b)
if that period is less than 200 years, an appropriate duration
is the same duration as that period.
681AL
Lease and rent
45
(1)
This section applies for the purposes of this Chapter.
(2)
A reference to a lease includes a reference to any of the following—

Taxation (International and Other Provisions) Bill
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(a)
an underlease, sublease, tenancy or licence, and
(b)
an agreement for a lease, underlease, sublease, tenancy or
licence, and
(c)
in the case of land outside the United Kingdom, an interest
corresponding to a lease (as defined here).
5
(3)
A reference to rent includes a reference to any payment under a
lease.
(4)
A reference to rent under a lease includes a reference to expenses
which the tenant under the lease is treated as incurring in respect of
the land subject to the lease under any of—
10
(a)
sections 61 to 67 of ITTOIA 2005 (land occupied for trade
purposes), and
(b)
sections 292 to 297 of that Act (taxed leases).
(5)
Expenses within subsection (4) must be treated as having been paid
as soon as they were incurred.
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681AM
Associated persons
(1)
This section applies for the purposes of this Chapter.
(2)
The following persons are associated with one another—
(a)
the transferor in an affected transaction and the transferor in
another affected transaction, if the two persons are acting in
20
concert or if the two transactions are in any way reciprocal,
and
(b)
any person who is an associate of either of those associated
transferors.
(3)
Two or more bodies corporate are associated with one another if they
25
participate in, or are incorporated for the purposes of, a scheme—
(a)
for the reconstruction of any body or bodies corporate, or
(b)
for the amalgamation of any two or more bodies corporate.
(4)
Persons are associated with one another if they are associates as
defined in section 681DL (relatives, settlements, persons controlling
30
bodies, joint owners etc).
(5)
In subsection (2) “affected transaction” means a transaction within—
(a)
section 681AA(1) or (2) or 681AB(1) or (2), or
(b)
section 835(1) or (2) or 836(1) or (2) of CTA 2010.
681AN
Land outside the UK
35
In the case of land outside the United Kingdom, expressions in this
Chapter relating to interests in land and their disposition must be
taken to relate to corresponding interests and dispositions.”

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After section 681AN insert—
“Chapter 2
New lease of land after assignment or surrender
Overview
681B
Overview
5
(1)
This Chapter provides that in certain circumstances where a lease of
land is assigned or surrendered and another lease is granted or
assigned—
(a)
consideration received for the assignment or surrender of the
first lease is taxed as a receipt of a trade, profession or
10
vocation or charged to income tax, and
(b)
tax relief is allowed for rent under the other lease.
(2)
The Chapter provides that in certain circumstances where a lease is
varied it is treated as surrendered and another lease is treated as
granted.
15
Application of the Chapter
681BA
New lease after assignment or surrender
(1)
This Chapter has effect if each of conditions A to E is met.
(2)
Condition A is that—
(a)
a person (“L”) is a lessee of land under a lease which has 50
20
years or less to run (“the original lease”), and
(b)
L is entitled in respect of the rent under the original lease to a
deduction by way of relevant income tax relief.
(3)
Condition B is that—
(a)
L assigns the original lease to another person or surrenders it
25
to L’s landlord, and
(b)
the consideration for the assignment or surrender would not
(apart from this Chapter) be taxable except as capital in L’s
hands.
(4)
Condition C is that—
30
(a)
another lease (“the new lease”) is granted, or assigned, to L or
a person linked to L, and
(b)
the new lease is for a term of 15 years or less.
(5)
Condition D is that the new lease—
(a)
is of all or part of the land which was the subject of the
35
original lease, or
(b)
includes all or part of the land which was the subject of the
original lease.
(6)
Condition E is that neither L nor a person linked to L had, before 22
June 1971, a right enforceable at law or in equity to the grant of the
40
new lease.

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(7)
If each of conditions A to D is met but condition E is not met, see the
relevant provisions in Schedule 2 to CTA 2010 and Schedule 9 to
TIOPA 2010.
Taxation of consideration
681BB
Taxation of consideration
5
(1)
An appropriate amount must be found under subsection (3) or (4)
of—
(a)
the consideration received by L for the assignment or
surrender, or
(b)
each instalment of the consideration (if it is paid in
10
instalments).
(2)
For the purposes of the Income Tax Acts the appropriate amount
must be treated in accordance with subsections (6) to (8) and not as a
capital receipt.
(3)
If the term of the new lease is one year or less, the appropriate
15
amount of the consideration or instalment is the whole of it.
(4)
If the term of the new lease is more than one year, the appropriate
amount of the consideration or instalment is the proportion of it
found by the formula—
(5)
In subsection (4) N is the term of the new lease expressed in years
20
(taking part of a year as an appropriate proportion of a year).
(6)
The way the appropriate amount must be treated depends on
whether the following conditions are met—
(a)
the consideration is received by L in the course of a trade,
profession or vocation, and
25
(b)
the rent payable by L, or a person linked to L, under the new
lease is allowable as a deduction in calculating profits or
losses of a trade, profession or vocation for tax purposes.
(7)
If the conditions are met the appropriate amount must be treated as
a receipt of the trade, profession or vocation mentioned in subsection
30
(6)(a).
(8)
If the conditions are not met the appropriate amount must be treated
as an amount chargeable to income tax.
(9)
If income tax is charged under subsection (8)—
(a)
it must be charged on the proportion of the appropriate
35
amount arising in the tax year,
(b)
the person liable for the tax is the lessee, and
(c)
the amount charged must be treated for income tax purposes
as an amount of income.