Taxation (International and Other Provisions) Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Taxation (International and Other Provisions) Bill

Taxation (International and Other Provisions) Bill
Schedule 4 — Sale and lease-back etc: new Part 12A of ITA 2007
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681BC
Position where new lease does not include all original property
(1)
This section applies for the purposes of section 681BB if the property
which is the subject of the new lease does not include all the property
which was the subject of the original lease.
(2)
The consideration received by L must be treated as reduced to the
5
portion of it found under subsection (3).
(3)
The portion is that which is reasonably attributable to such part of
the original property as—
(a)
consists of the property which is the subject of the new lease,
or
10
(b)
is included in the property which is the subject of the new
lease.
(4)
The original property is the property which was the subject of the
original lease.
Relief for rent under new lease
15
681BD
Relief for rent under new lease
(1)
This section applies if the rent under the new lease is payable by a
person within the charge to income tax.
(2)
This section also applies if—
(a)
Chapter 2 of Part 19 of CTA 2010 (provision for corporation
20
tax corresponding to this Chapter) has effect, and
(b)
the rent under the new lease is payable by a person within the
charge to income tax.
(3)
The provisions of ITTOIA 2005 providing for deductions or
allowances by way of income tax relief in respect of payments of rent
25
apply in relation to the rent under the new lease.
(4)
In subsection (2), and in subsection (3) as applied by subsection (2),
references to the new lease and rent are to be read as in Chapter 2 of
Part 19 of CTA 2010.
New lease treated as ending
30
681BE
New lease treated as ending
(1)
Sections 681BF to 681BH treat the new lease as ending in certain
circumstances for the purposes of this Chapter.
(2)
If any of those provisions apply in a given case, and the new lease is
treated as ending on different dates, it must be treated as ending on
35
the earlier or earliest of them.
681BF
Position where rent reduces
(1)
If the rent for a relevant period exceeds the rent for the following
comparable period, the term of the new lease must be treated as
ending on the date when the relevant period ends.
40
(2)
For the purposes of this section—

Taxation (International and Other Provisions) Bill
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(a)
a relevant period is a rental period of the new lease ending
before its fifteenth anniversary,
(b)
the following comparable period (in relation to a relevant
period) is the rental period which is of the same duration as
the relevant period and which begins on the day following
5
the end of the relevant period,
(c)
the rent for a period is the total rent payable under the new
lease in respect of the period,
(d)
a rental period is a period in respect of which a payment of
rent is to be made, and
10
(e)
the fifteenth anniversary of the new lease is the fifteenth
anniversary of the date on which its term begins.
(3)
For the purposes of this section—
(a)
all rental periods of a quarter must be treated as being of the
same duration, and
15
(b)
all rental periods of a month must be treated as being of the
same duration.
681BG
Position where lease may be ended
(1)
This section applies if under the new lease the lessor, or L or a person
linked to L, has power to end the lease before the end of the term for
20
which it was granted.
(2)
The term of the lease must be treated as ending on the earliest date
with effect from which the lessor, or L or a person linked to L, could
end the lease by exercising the power.
681BH
Position where lease may be varied
25
(1)
This section applies if under the new lease L, or a person linked to L,
has power to vary, in a manner beneficial to L or a person linked to
L, obligations under the lease that are obligations of L or a person
linked to L.
(2)
The term of the lease must be treated as ending on the earliest date
30
with effect from which L, or a person linked to L, could vary the
obligations by exercising the power.
681BI
Lease treated as ending: rentcharge
(1)
Subsection (2) applies if a rentcharge payable by L, or a person linked
to L, is secured on all or part of the property subject to the new lease.
35
(2)
For the purposes of sections 681BF to 681BH the rent payable under
the new lease must be treated as equal to the sum of the rentcharge
and the rent payable under the lease.
Lease varied to provide for increased rent
681BJ
Lease varied to provide for increased rent
40
(1)
This section applies if each of conditions A to D is met.
(2)
Condition A is that—
(a)
a person (“the lessee”) is a lessee of land under a lease which
has 50 years or less to run (“the original lease”), and

Taxation (International and Other Provisions) Bill
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(b)
the lessee 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 (by agreement with the landlord) the lessee varies
the original lease.
(4)
Condition C is that under the variation—
5
(a)
the lessee agrees to pay a rent greater than that payable under
the original lease, and
(b)
the lessee agrees to pay the greater rent in return for a
consideration which would not (apart from this Chapter) be
taxable except as capital in the lessee’s hands.
10
(5)
Condition D is that under the variation the period during which the
greater rent is to be paid ends 15 years or less after the date on
which—
(a)
the consideration is paid to the lessee, or
(b)
the last instalment of the consideration is paid to the lessee (if
15
it is paid in instalments).
(6)
If this section applies the lessee must be treated for the purposes of
this Chapter—
(a)
as having surrendered the original lease for the consideration
mentioned in subsection (4)(b), and
20
(b)
as having been granted a new lease for a term of 15 years or
less but otherwise on the terms of the original lease varied as
mentioned in subsection (3).
Interpretation
681BK
Relevant income tax relief
25
For the purposes of this Chapter each of the following is a deduction
by way of relevant income tax relief—
(a)
a deduction in calculating profits or losses of a trade,
profession or vocation for income tax purposes,
(b)
a deduction in calculating the profits of a UK property
30
business for income tax purposes,
(c)
a deduction in calculating any loss for which relief is given
under section 152 (losses from miscellaneous transactions), or
in calculating profits or other income or gains chargeable to
income tax under or by virtue of any provision to which
35
section 1016 applies, and
(d)
a deduction from earnings allowed under section 336 of
ITEPA 2003 (expenses) or allowed in calculating losses in an
employment for income tax purposes.
681BL
Linked persons
40
(1)
In this Chapter references to a person linked to L are to a person who
is—
(a)
a partner of L,
(b)
an associate of L, or
(c)
an associate of a partner of L.
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Taxation (International and Other Provisions) Bill
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(2)
“Associate” must be read in accordance with section 681DL
(relatives, settlements, persons controlling bodies, joint owners etc).
681BM
Lease, lessee, lessor and rent
(1)
This section applies for the purposes of this Chapter.
(2)
“Lease” includes—
5
(a)
an agreement for a lease, and
(b)
any tenancy.
(3)
“Lease” does not include a mortgage.
(4)
A reference to a lessee or lessor—
(a)
is to be read in accordance with subsections (2) and (3), and
10
(b)
includes a reference to the successors in title of a lessee or
lessor.
(5)
“Rent” includes a payment by a tenant for work to maintain or repair
leased premises which the lease does not require the tenant to carry
out; and “premises” here includes land.
15
(6)
In the application of this section to Scotland “mortgage” means—
(a)
a standard security, or
(b)
a heritable security, as defined in the Conveyancing
(Scotland) Act 1924 but including a security constituted by ex
facie absolute disposition or assignation.”
20
4
After section 681BM insert—
“Chapter 3
Leased trading assets
Overview
681C
Overview
25
This Chapter provides that, in certain circumstances where a
payment is made under a lease of a trading asset, income tax relief
for the payment is restricted.
Application of the Chapter
681CA
Professions and vocations
30
In this Chapter a reference to a trade includes a reference to a
profession or vocation.
681CB
Leased trading assets
(1)
Section 681CC has effect if—
(a)
condition A is met, and
35
(b)
condition B or C is met.
(2)
Condition A is that—
(a)
a payment is made by a person under a lease of a relevant
asset, and

Taxation (International and Other Provisions) Bill
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(b)
a deduction is allowed for the payment in calculating the
profits of a trade for income tax purposes.
(3)
Condition B is that—
(a)
at a time before the lease’s creation the asset was used for the
purposes of the trade, and
5
(b)
when it was so used it was owned by the person then
carrying on the trade.
(4)
Condition C is that—
(a)
at a time before the lease’s creation the asset was used for the
purposes of another trade,
10
(b)
when it was so used it was owned by the person then
carrying on the other trade, and
(c)
when it was so used, or later, that person was carrying on the
trade mentioned in subsection (2).
(5)
The reference in subsection (2)(a) to a lease does not include a lease
15
created on or before 14 April 1964.
(6)
In this section references to a person carrying on a trade are to the
person carrying on the trade for the time being.
Relief: restriction and carrying forward
681CC
Tax deduction not to exceed commercial rent
20
(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
681CB(2), or
(b)
if there are two or more such payments, for the non-excluded
25
elements of those payments.
(2)
For the purposes of this section—
(a)
“relevant period” means—
(i)
a period of account of the trade, or
(ii)
if no accounts of the trade are drawn up for a period,
30
the basis period of a tax year, and
(b)
the non-excluded element of a payment is the element of the
payment not excluded under section 681CD (long funding
finance leases).
(3)
The rules are—
35

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
of—
40
(a)
the non-excluded element of the payment, or
(b)
the non-excluded elements of the payments.

Rule 2 — calculations

For every relevant period—

Taxation (International and Other Provisions) Bill
Schedule 4 — Sale and lease-back etc: new Part 12A of ITA 2007
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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 creation of the lease mentioned in section 681CB(2)(a),
(b)
calculate the total of the deductions by way of relevant
income tax relief for every previous relevant period ending
5
on or after that date, 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

A relevant period is a post-spread period if for that relevant period,
10
and every later relevant period, there are no payments within section
681CB(2).

Rule 4 — the deduction allowed in a relevant period

If a relevant period is not a post-spread period, the deduction
allowed for the period is equal to the cumulative unrelieved
15
expenses for the period, but is the commercial rent for the period if
that is less (see section 681CE).

Rule 5— relevant periods in which no deduction allowed

If a relevant period is a post-spread period, no deduction is allowed
for the period.
20
681CD
Long funding finance leases
(1)
This section applies for the purposes of section 681CC.
(2)
A payment must be excluded so far as, in the case of the lessee, it is
to be regarded in accordance with Chapter 6A of Part 2 of CAA 2001
as a payment under a lease which is a long funding finance lease for
25
the purposes of that Part.
681CE
Commercial rent
(1)
Subsection (3) applies for the purpose of making a comparison under
rule 4 of section 681CC(3).
(2)
In this section “the actual lease” means the lease mentioned in section
30
681CB(2)(a).
(3)
The commercial rent is the rent which might at the relevant time be
expected to be paid under a lease of the asset if—
(a)
the lease were for the rest of the asset’s expected normal
working life,
35
(b)
the rent were payable at uniform intervals and at a uniform
rate, and
(c)
the rent gave a reasonable return for the asset’s market value
at the relevant time, taking account of the actual lease’s terms
and conditions.
40
(4)
The relevant time is the time when the actual lease was created.
(5)
An asset’s expected normal working life is the period which might
be expected, when it is first put into use, to pass before it is finally put
out of use as being unfit for further use.
(6)
In applying subsection (5) it must be assumed that the asset will be
45
used in the normal way, and to the normal extent, throughout the
period.

Taxation (International and Other Provisions) Bill
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(7)
If the asset is used at the same time partly for the purposes of the
trade mentioned in section 681CB(2)(b) and partly for other
purposes, the commercial rent as defined in subsection (3) is to be
determined by reference to what would be paid for such partial use.
Interpretation
5
681CF
Lease
(1)
This section applies for the purposes of this Chapter.
(2)
A lease is (in relation to an asset) an agreement or arrangement under
which payments are made for the use of or otherwise in respect of the
asset.
10
(3)
In particular it includes an agreement or arrangement under which
the payments (or any of them) represent instalments of a purchase
price or payments towards it.
681CG
Relevant asset
For the purposes of this Chapter a relevant asset is any description of
15
property or rights other than land or an interest in land.”
5
After section 681CG insert—
“Chapter 4
Leased assets: capital sums
Overview
20
681D
Overview
This Chapter provides that in certain circumstances where a payment
is made under a lease of an asset, and a capital sum is obtained in
respect of an interest in the asset, income tax is charged on an amount
not greater than the capital sum.
25
Application of the Chapter
681DA
Application of the Chapter
This Chapter applies if—
(a)
condition A is met (see section 681DB), and
(b)
condition B, C, D or E is met (see section 681DC).
30
681DB
Payment under lease
(1)
Condition A is that—
(a)
a payment is made under a lease of a relevant asset, and
(b)
the payment is one for which a deduction by way of relevant
tax relief is allowed.
35
(2)
Condition A is not met if section 681CC (leased trading assets: tax
deductions)—
(a)
applies to the payment, or