Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 1 — Payments connected with transferred land
416

836
Transferor or associate becomes liable for payment other than rent
(1)
Section 838 has effect if—
(a)
land, or an estate or interest in land, is transferred,
(b)
the transferor, or a company associated with the transferor, becomes
liable to make a payment which is not rent under a lease but is
5
otherwise connected with the land or part of it (whether it is a payment
under a rentcharge or under some other transaction), and
(c)
a deduction by way of relevant corporation tax relief (see section 837)
is allowed for the payment.
(2)
Section 839 has effect if—
10
(a)
land, or an estate or interest in land, is transferred,
(b)
the transferor, or a company associated with the transferor, becomes
liable to make a payment which is not rent under a lease but is
otherwise connected with the land or part of it (whether it is a payment
under a rentcharge or under some other transaction), and
15
(c)
a deduction under section 76 of ICTA (expenses of insurance
companies) is allowed for the payment.
(3)
The reference in subsection (1)(a) or (2)(a) to a transfer of an estate or interest
in land includes a reference to any of the following—
(a)
the granting of a lease or another transaction involving the creation of
20
a new estate or interest in the land,
(b)
the transfer of the lessee’s interest under a lease by surrender or
forfeiture of the lease, and
(c)
a transaction or series of transactions affecting land or an estate or
interest in land, such that some person is the owner or one of the
25
owners before and after the transaction or transactions but another
person becomes or ceases to be one of the owners.
(4)
In relation to a transaction or series of transactions mentioned in subsection
(3)(c), a person is to be regarded as a transferor for the purposes of this Chapter
if the person—
30
(a)
is an owner before the transaction or transactions, and
(b)
is not the sole owner afterwards.
(5)
The liability mentioned in subsection (1)(b) or (2)(b) is one resulting from a
transaction or series of transactions affecting the land or an estate or interest in
it.
35
(6)
The liability mentioned in subsection (1)(b) or (2)(b) is one arising at the time
of the transfer or later.
(7)
The reference in subsection (1)(a) or (2)(a) to a transfer does not include a
transfer on or before 14 April 1964.
837
Relevant corporation tax relief
40
For the purposes of this Chapter each of the following is a deduction by way of
relevant corporation tax relief—
(a)
a deduction in calculating profits or losses of a trade for corporation tax
purposes,
(b)
a deduction in calculating the profits of a UK property business for
45
corporation tax purposes,

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 1 — Payments connected with transferred land
417

(c)
a deduction in calculating any loss for which relief is given under
section 91 (losses from miscellaneous transactions), or in calculating
profits or gains chargeable to corporation tax under or by virtue of any
provision to which section 1173 (miscellaneous charges) applies, and
(d)
a deduction under section 1219 of CTA 2009 (expenses of management
5
of a company’s investment business).
Relief (other than for certain insurance company expenses): restriction and carrying forward
838
Relevant corporation 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 corporation tax relief allowed in an accounting period—
10
(a)
for the non-excluded element of the payment within section 835(1) or
836(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 the non-excluded element of a payment is the
15
element of the payment not excluded under section 843 (service charges etc).
(3)
The rules are—

Rule 1 —meaning of amount E

For any accounting period, amount E (which may be nil) is the expense or total
expenses to be brought, in accordance with generally accepted accounting
20
practice, into account in the period in respect of—
(a)
the non-excluded element of the payment, or
(b)
the non-excluded elements of the payments.

Rule 2 — calculations

For every accounting period—
25
(a)
calculate the total of amount E for the period and amount E for every
previous accounting period ending on or after the date of the transfer
mentioned in section 835(1)(a) or 836(1)(a),
(b)
calculate the total of the deductions by way of relevant corporation tax
relief for every previous accounting period ending on or after the date
30
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

An accounting period is a post-spread period if for that accounting period, and
35
every later accounting period, there are no payments within section 835(1) or
836(1).

Rule 4 — the deduction allowed in an accounting period

If an accounting 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
40
equal to the commercial rent for the period if that is less (see section 844 or 845).

Rule 5 — accounting periods in which no deduction allowed

If an accounting period is a post-spread period, no deduction is allowed for the
period.

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 1 — Payments connected with transferred land
418

Insurance company expenses: restriction and carrying forward of relief
839
Deduction under section 76 of ICTA not to exceed commercial rent
(1)
Subsection (3) applies to the calculation of the deduction under section 76 of
ICTA allowed for the non-excluded element of the payment within section
835(2) or 836(2).
5
(2)
For the purposes of this section the non-excluded element of a payment is the
element of the payment not excluded under section 843 (service charges etc).
(3)
The deduction must not exceed the commercial rent for the period for which
the payment is made (see section 844 or 845).
840
Carrying forward parts of payments
10
(1)
This section applies if—
(a)
section 839 has effect, and
(b)
conditions A and B are met.
(2)
Condition A is that under section 839 part of a payment which would
otherwise be allowed as a deduction under section 76 of ICTA is not allowed.
15
(3)
Condition B is that one or more later payments are made, by the transferor or
a person associated with the transferor, under—
(a)
the lease (if section 839 has effect because of section 835(2)), or
(b)
the rentcharge or other transaction mentioned in section 836(2)(b) (if
section 839 has effect because of section 836(2)).
20
(4)
The part of the payment mentioned in subsection (2) may be carried forward
and treated for the purposes of a deduction under section 76 of ICTA as if it
were made—
(a)
when the next of the later payments is made, and
(b)
for the period for which that later payment is made.
25
(5)
So far as a part of a payment carried forward under this section is not allowed
as a deduction under section 76 of ICTA, it may be carried forward again under
this section.
841
Aggregation and apportionment of payments
(1)
This section applies for the purposes of section 839.
30
(2)
If more than one payment is made for the same period the payments must be
taken together.
(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
35
overlapping periods must be taken together.
(4)
References in subsections (2) and (3) to payments include references to parts of
payments which under section 840 are treated as if made later than they were
made.

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 1 — Payments connected with transferred land
419

842
Payments made for later periods
(1)
This section applies for the purposes of sections 839 to 841.
(2)
For the purposes of this section the relevant year (in relation to a 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
5
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 the relevant year (and
no part for a later period).
Interpretation etc
10
843
Exclusion of service charges etc
(1)
This section applies for the purposes of sections 838 and 839.
(2)
A payment must be excluded so far as it is in respect of any of the following—
(a)
services,
(b)
the use of relevant assets, and
15
(c)
rates usually borne by the tenant.
(3)
The amount excluded must be just and reasonable.
(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.
20
(5)
A relevant asset is any description of property or rights other than land or an
interest in land.
844
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 838(3)
25
if section 838 has effect because of section 835(1), and
(b)
for the purpose of making a comparison under section 839(3) if section
839 has effect because of section 835(2).
(2)
In this section “the actual lease” means the lease mentioned in section 835(1)(b)
or (2)(b).
30
(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
835(1)(b) or (2)(b) is made, which—
(a)
was negotiated in the open market when the actual lease was created,
(b)
is of the same duration as the actual lease,
35
(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.
(4)
Rent is payable at an appropriate rate if—
40

Corporation Tax Bill
Part 19 — Sale and lease-back etc
Chapter 1 — Payments connected with transferred land
420

(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 previous year), it progresses
by gradations proportionate to those provided by the actual lease.
5
845
Commercial rent: comparison with payments other than rent
(1)
Subsection (2) applies—
(a)
for the purpose of making a comparison under rule 4 of section 838(3)
if section 838 has effect because of section 836(1), and
(b)
for the purpose of making a comparison under section 839(3) if section
10
839 has effect because of section 836(2).
(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
836(1)(b) or (2)(b) is made, which—
(a)
was negotiated in the open market when the rentcharge or other
15
transaction mentioned in section 836(1)(b) or (2)(b) 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 whole) of the premises
20
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 the
25
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.
846
Lease and rent
(1)
This section applies for the purposes of this Chapter.
30
(2)
A reference to a lease includes a reference to any of the following—
(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).
35
(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—
(a)
sections 63 to 67 of CTA 2009 (land occupied for trade purposes), and
40
(b)
sections 232 to 234 of that Act (taxed leases).
(5)
Expenses within subsection (4) must be treated as having been paid as soon as
they were incurred.