Legalize / United Kingdom / Public General Act

Income Tax (Trading and Other Income) Act 2005

Type Public General Act

Publication 2005-03-24

Last updated 2026-01-20

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

(a) Chapter 3 so far as it relates to a UK property business, and

(b) Chapter 9 (rent receivable for UK electric-line wayleaves),

is dealt with under Chapter 9.

(3) Any receipt, so far as it falls within Chapter 8 (rent receivable in connection with a UK section 12(4) concern) and Chapter 9 (rent receivable for UK electric-line wayleaves), is dealt with under Chapter 9.

Chapter 2 — Property businesses

Introduction

263

(1) This Chapter explains for the purposes of this Act what is meant by—

(a) a person's UK property business (see section 264), and

(b) a person's overseas property business (see section 265).

(2) Both those sections need to be read with—

(a) section 266 (which explains what is meant by generating income from land), and

(b) section 267 (which provides that certain activities do not count as activities for generating income from land).

(3) In the case of the property business of a firm, the basic rules in sections 264 and 265 are explained in section 859(2) and (3).

(4) References in this Act to an overseas property business are to an overseas property business so far as any profits of the business are chargeable to tax under Chapter 3 (as to which see, in particular, section 269).

(5) Accordingly, nothing in Chapter 4 or 5 is to be read as treating an amount as a receipt of an overseas property business if the profits concerned would not be chargeable to tax under Chapter 3.

(6) In this Act “property business” means a UK property business or an overseas property business.

Basic meaning of UK and overseas property business

UK property business

264

A person's UK property business consists of—

(a) every business which the person carries on for generating income from land in the United Kingdom, and

(b) every transaction which the person enters into for that purpose otherwise than in the course of such a business.

Overseas property business

265

A person's overseas property business consists of—

(a) every business which the person carries on for generating income from land outside the United Kingdom, and

(b) every transaction which the person enters into for that purpose otherwise than in the course of such a business.

Generating income from land

Meaning of “generating income from land”

266

(1) In this Chapter “generating income from land” means exploiting an estate, 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,

(b) payments in respect of the exercise of any other right over land, and

(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.

Activities not for generating income from land

267

For the purposes of this Chapter the following activities are not carried on for generating income from land—

(a) farming or market gardening in the United Kingdom (but see section 9 (UK farming or market gardening treated as trade)),

(b) any other occupation of land (but see section 10 (certain commercial occupation of UK land treated as trade)), and

Chapter 3 — Profits of property businesses: basic rules

Charge to tax on profits of a property business

268

Income tax is charged on the profits of a property business.

Territorial scope of charge to tax

269

(1) Profits of a UK property business are chargeable to tax under this Chapter whether the business is carried on by a UK resident or a non-UK resident.

(2) Profits of an overseas property business are chargeable to tax under this Chapter only if the business is carried on by a UK resident.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income charged

270

(1) Tax is charged under this Chapter on the full amount of the profits arising in the tax year.

(2) Subsection (1) is subject to Part 8 (foreign income: special rules).

(3) If, as respects an individual carrying on an overseas property business, the tax year is a split year—

(a) tax is charged under this Chapter on so much of the profits referred to in subsection (1) as arise in the UK part of the tax year, and

(b) the portion of the profits arising in the overseas part of the tax year is, accordingly, not chargeable to tax under this Chapter.

(4) In determining how much of the profits arise in the UK part of the tax year—

(a) determine first how much of the non-CAA profits arise in the UK part by apportioning the non-CAA profits between the UK part and the overseas part on a just and reasonable basis, and

(b) then adjust the portion of the non-CAA profits arising in the UK part by deducting any CAA allowances for the year and adding any CAA charges for the year.

(5) In subsection (4)—

“CAA allowances” means allowances treated under section 250 ... of CAA 2001 (capital allowances for overseas property businesses) as an expense of the business;

“CAA charges” means charges treated under that section as a receipt of the business;

“non-CAA profits” means profits before account is taken of any CAA allowances or CAA charges.

Person liable

271

The person liable for any tax charged under this Chapter is the person receiving or entitled to the profits.

Calculation of profits : application of trading income rules

Profits of a property business: application of trading income rules

272

(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) In relation to a property business whose profits are calculated in accordance with GAAP, the provisions of Part 2 (trading income) which apply as a result of section 271E(1) are limited to the following—

In Chapter 3 (basic rules)—	In Chapter 3 (basic rules)—
. . .	. . .
section 26	losses calculated on same basis as profits
section 27	receipts and expenses
section 28	items treated under CAA 2001 as receipts and expenses
section 28A	money's worth
section 29	interest
In Chapter 4 (rules restricting deductions)—	In Chapter 4 (rules restricting deductions)—
section 33	capital expenditure
section 34	expenses not wholly and exclusively for trade and unconnected losses
section 35	bad and doubtful debts
sections 36 and 37	unpaid remuneration
sections 38 to 44	employee benefit contributions
sections 45 to 47	business entertainment and gifts
sections 48 to 50B	car ... hire
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
section 52	exclusion of double relief for interest
section 53	social security contributions
section 54	penalties , interest and VAT surcharges and interest
section 55	crime-related payments
section 55A	expenditure on integral features
In Chapter 5 (rules allowing deductions)—	In Chapter 5 (rules allowing deductions)—
section 57	pre-trading expenses
sections 58 and 59	incidental costs of obtaining finance
. . .	. . .
section 69	payments for restrictive undertakings
sections 70 and 71	seconded employees
section 72	payroll deduction schemes: contributions to agents' expenses
sections 73 to 75	counselling and retraining expenses
sections 76 to 80	redundancy payments etc.
section 81	personal security expenses
sections 82 to 86	contributions to local enterprise organisations or urban regeneration companies
sections 86A and 86B	contributions to flood and coastal erosion risk management projects
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
section 94A	costs of setting up SAYE option scheme or CSOP scheme
section 94AA	deductions in relation to salaried members of limited liability partnerships
In Chapter 5A (deductions allowable at a fixed rate)	In Chapter 5A (deductions allowable at a fixed rate)
section 94C	exclusion of provisions of Chapter 5A for firms with partner who is not an individual
sections 94D to 94G	expenditure on vehicles
In Chapter 6 (receipts)—	In Chapter 6 (receipts)—
section 96	capital receipts
section 97	debts incurred and later released
section 104	distribution of assets of mutual concerns
section 105	industrial development grants
section 106	sums recovered under insurance policies etc.
In Chapter 7 (gifts to charities etc.)—	In Chapter 7 (gifts to charities etc.)—
section 109	receipt by donor or connected person of benefit attributable to certain gifts
In Chapter 10A (long funding leases)—	In Chapter 10A (long funding leases)—
Sections 148A to 148J	Leases of plant or machinery: special rules for long funding leases
In Chapter 11 (other specific trades)—	In Chapter 11 (other specific trades)—
section 155	levies and repayments under FISMA 2000
In Chapter 13 (deductions from profits)—	In Chapter 13 (deductions from profits)—
sections 188 to 191	unremittable amounts

(3) In those provisions the expression “this Part” is to be read as a reference to those provisions as applied by subsection (2) and to the other provisions of Part 3.

Amounts not brought into account as part of a property business

273

(1) The rules for calculating the profits of a property business need to be read with the following provisions of Part 2 (trading income)—

(a) section 19 (tied premises),

(b) section 20 (caravan sites where trade carried on),

(d) section 22(3) (payments for wayleaves).

(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.

Relationship between rules prohibiting and allowing deductions

274

(1) Any relevant permissive rule in this Part—

(a) has priority over any relevant prohibitive rule in this Part, but

(b) is subject to—

(i) section 36 (unpaid remuneration), as applied by section 272,

(ii) section 38 (employee benefit contributions), as applied by sections 272 and 272ZA,

(iii) section 48 (car hire), as applied by section 272,

(iv) section 55 (crime-related payments), as applied by sections 272 and 272ZA,

(v) section 272A (finance costs), and

(vi) section 307D (cash basis: modification of deduction for costs of loans).

(1A) But, if the relevant permissive rule would allow a deduction in calculating the profits of a property business in respect of an amount which arises directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements, that rule—

(a) does not have priority under subsection (1)(a), and

(b) is subject to any relevant prohibitive rule in this Part (and to the provisions mentioned in subsection (1)(b)).

(2) In this section “any relevant permissive rule in this Part” means any provision of this Part (apart from sections 291 to 294) which allows a deduction in calculating the profits of a property business.

(3) In this section “any relevant prohibitive rule in this Part”, in relation to any deduction, means any provision of this Part (apart from sections 36, 38, 48 and 55, as applied by section 272 , or sections 38 and 55 as applied by section 272ZA , and apart also from sections 272A and 307D) which might otherwise be read as—

(a) prohibiting the deduction, or

(b) restricting the amount of the deduction.

(3A) In this section “relevant tax avoidance arrangements” means arrangements—

(a) to which the person carrying on the property business is a party, and

(b) the main purpose, or one of the main purposes, of which is the obtaining of a tax advantage (within the meaning of section 1139 of CTA 2010).

“Arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

(4) In this section any reference to any provision of this Part includes any provision applied by section 272 or 272ZA.

Apportionment of profits

Apportionment etc. of profits to tax year

275

(1) This section and sections 275A to 275C apply if a period of account of a property business does not coincide with a tax year.

(2) Any of the following steps may be taken if they are necessary in order to arrive at the profits or losses of the tax year—

(a) apportioning the profits or losses of a period of account to the parts of that period falling in different tax years, and

(b) adding the profits or losses of a period of account (or part of a period) to profits or losses of other periods of account (or parts).

(3) The steps must be taken by reference to the number of days in the periods concerned.

(4) But the person carrying on the business may use a different way of measuring the length of the periods concerned if—

(a) it is reasonable to do so, and

(b) the way of measuring the length of periods is used consistently for the purposes of the business.

(5) Sections 275A and 275B contain rules for the purpose of avoiding the need to apportion profits or losses under this section (and section 275C makes provision for the person carrying on the business to elect for those rules not to apply).

Chapter 4 — Profits of property businesses: lease premiums etc.

Introduction

276

(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 calculating the profits of a property business.

(2) The amounts relate to short-term leases in the case of—

section 277 (lease premiums),

section 278 (amount treated as lease premium where work required),

section 280 (sums payable for surrender of lease), and

section 282 (assignments for profit of lease granted at undervalue).

(3) The amounts relate to any lease in the case of—

section 279 (sums payable instead of rent), and

section 281 (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—

section 284 (sales with right to reconveyance), and

section 285 (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 291 and 292 ; but see also section 276A).

(6) In this Chapter “short-term lease” means a lease whose effective duration is 50 years or less.

Amounts treated as receipts: leases

Lease premiums

277

(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 person to whom the premium is due is treated as—

(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (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 property business which consists of or includes that transaction for the tax year in which the lease is granted.

(4) The amount of the receipt is given by the formula—

$$P×(50-Y50)$where—P is the premium, andY is the number of complete periods of 12 months (other than the first) comprised in the effective duration of the lease.$

(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.

Amount treated as lease premium where work required

278

(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 277 (lease premiums) as 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 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 expense in calculating the profits of the landlord's property business.

Sums payable instead of rent

279

(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 period, and

(b) the period is 50 years or less.

(2) The person to whom the sum is due is treated as—

(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (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 property business which consists of or includes that transaction for the tax year in which the sum becomes payable.

(4) The amount of the receipt is given by the formula—

$$S×(50-Y50)$where—S is the sum payable instead of rent, andY is the number of complete periods of 12 months (other than the first) comprised in the period in relation to which the sum is payable.$

(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.

(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.

Sums payable for surrender of lease

280

(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 person to whom the sum is due is treated as—

(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (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 property business which consists of or includes that transaction for the tax year in which the sum becomes payable.

(4) The amount of the receipt is given by the formula—

$$S×(50-Y50)$where—S is the sum payable as consideration for the surrender of the lease, andY is the number of complete periods of 12 months (other than the first) comprised in the effective duration of the lease.$

(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.

Sums payable for variation or waiver of term of lease

281

(1) This section applies if—

(a) a sum becomes payable by the tenant (otherwise than by way of rent) as consideration for the variation or waiver of a term of a lease,

(b) the sum is due to the landlord or a person who is connected with the landlord, and

(2) The person to whom the sum is due is treated as—

(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (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 property business which consists of or includes that transaction for the tax year in which the contract providing for the variation or waiver is entered into.

(4) The amount of the receipt is given by the formula—

$$S×(50-Y50)$where—S is the sum payable as consideration for the variation or waiver, andY is the number of complete periods of 12 months (other than the first) comprised in the period for which the variation or waiver has effect.$

(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.

(6) In determining for the purposes of this Chapter the duration of the period for which the variation or waiver has effect, any part of the period that falls after the expiry of the effective duration of the lease is excluded.

Assignments for profit of lease granted at undervalue

282

(1) This section applies to an assignment of a short-term lease if—

(a) the lease was granted at an undervalue, and

(b) a profit is made on the assignment.

(2) The person who assigns the lease is treated as—

(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (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 property business which consists of or includes that transaction for the tax year in which the consideration for the assignment becomes payable.

(4) The amount of the receipt is given by the formula—

$$P×(50-Y50)$where—P is the lesser of—(a) the profit on the assignment, and(b) the amount by which the undervalue exceeds the total of the profits (if any) made on previous assignments of the lease, andY is the number of complete periods of 12 months (other than the first) comprised in the effective duration of the lease.$

(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.

(6) Section 283 explains references in this section to the grant of a lease at an undervalue and the making of a profit on an assignment of a lease.

Provisions supplementary to section 282

283

(1) This section operates for the purposes of section 282.

(2) A lease is granted at an undervalue if the terms subject to which it was granted are such that the landlord who granted it could have required the payment of an additional sum by way of premium, or additional premium, for its grant.

(3) The additional sum is the undervalue.

(4) The test in subsection (2) must be applied—

(a) having regard to values prevailing at the time the lease was granted, and

(b) on the assumption that the negotiations for the lease were at arm's length.

(5) A profit is made on an assignment of a lease if the consideration for the assignment exceeds—

(a) if the lease has not previously been assigned, any premium for which it was granted, or

(b) in any other case, any consideration for which it was last assigned.

(6) The amount of the excess is the profit.

Other amounts treated as receipts

Sales with right to reconveyance

284

(1) This section applies if—

(a) an estate or interest in land is sold subject to terms which provide that it is to be, or may be required to be, reconveyed on a future date to the seller or a person connected with the seller,

(b) the period beginning with the sale and ending with the earliest date on which under the terms of the sale the estate or interest would fall to be reconveyed is 50 years or less, and

(2) The seller is treated as—

(a) entering into a transaction mentioned in section 264 (if the land is in the United Kingdom) or section 265 (if the land is outside the United Kingdom), and

(b) receiving the amount calculated under subsection (4) as a result of that transaction.

(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 tax year in which the estate or interest is sold.

(4) The amount of the receipt is given by the formula—

$$E×(50-Y50)$where—E is the amount by which the price at which the estate or interest is sold exceeds the price at which it is to be reconveyed, andY is the number of complete periods of 12 months (other than the first) comprised in the period beginning with the sale and ending with the earliest date on which under the terms of the sale the estate or interest would fall to be reconveyed.$

(5) See section 286 for some provisions which are supplementary to this section.

Sale and leaseback transactions

285

(1) This section applies if—

(a) an estate or interest in land is sold subject to terms which provide for the grant of a lease directly or indirectly out of the estate or interest to the seller or a person connected with the seller,

(b) the period beginning with the sale and ending with the earliest date on which under the terms of the sale the lease would fall to be granted is 50 years or less, and

(i) the amount of any premium for the lease, and

(ii) the value on the date of the sale of the right to receive a conveyance of the reversion immediately after the lease begins to run.

(2) This section does not apply if the lease is granted and begins to run within one month after the sale.

(3) The seller is treated as—

(a) entering into a transaction mentioned in section 264 (if the land is in the United Kingdom) or section 265 (if the land is outside the United Kingdom), and

(b) receiving the amount calculated under subsection (5) as a result of that transaction.

(4) 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 tax year in which the estate or interest is sold.

(5) The amount of the receipt is given by the formula—

$$E×(50-Y50)$where—E is the amount by which the price at which the estate or interest is sold exceeds the total of—(a) the amount of any premium for the lease, and(b) the value on the date of the sale of the right to receive a conveyance of the reversion immediately after the lease begins to run, andY is the number of complete periods of 12 months (other than the first) comprised in the period beginning with the sale and ending with the earliest date on which under the terms of the sale the lease would fall to be granted.$

(6) See section 286 for some provisions which are supplementary to this section.

Provisions supplementary to sections 284 and 285

286

(1) This section operates for the purposes of sections 284 (sales with right to reconveyance) and 285 (sale and leaseback transactions).

(2) Subsection (3) explains how to determine for the purposes of section 284 the price at which an estate or interest is to be reconveyed when—

(a) the date on which the estate or interest would fall to be reconveyed is not fixed under the terms of the sale, and

(b) the price at which it is to be reconveyed varies with the date.

(3) The price is taken to be the lowest possible under the terms of the sale.

(4) Subsection (5) explains how to determine for the purposes of section 285 the total of—

(a) the amount of any premium for the lease, and

(b) the value on the date of the sale of the right to receive a conveyance of the reversion immediately after the lease begins to run,

when the date for the grant of the lease is not fixed under the terms of the sale and the total varies with the date.

(5) The total is taken to be the lowest possible under the terms of the sale.

(6) For the purposes of sections 284(3) and 285(4) (receipts of property business for tax year in which estate or interest sold) an estate or interest in land is sold when any of the following occurs—

(a) an unconditional contract for its sale is entered into,

(b) a conditional contract for its sale becomes unconditional, or

(c) an option or right of pre-emption is exercised requiring the seller to enter into an unconditional contract for its sale.

Additional calculation rule for reducing certain receipts

Circumstances in which additional calculation rule applies

287

(1) The rule in section 288 (the additional calculation rule) applies in relation to the calculation of receipts under—

section 277 (lease premiums),

section 279 (sums payable instead of rent),

section 280 (sums payable for surrender of lease),

section 281 (sums payable for variation or waiver of terms of lease), or

section 282 (assignments for profit of lease granted at undervalue).

(2) It applies if conditions A and B are met.

(3) Condition A is that—

(a) in the case of a receipt under section 277, 279 or 280, the lease is granted out of a taxed lease,

(b) in the case of a receipt under section 281, the lease was granted out of a taxed lease, and

(4) A lease is a “taxed lease” for the purposes of this Chapter if—

(a) there is a receipt under any of sections 277 to 282 in respect of the lease, ...

(b) there would be such a receipt, but for the operation of the rule in section 288 (the additional calculation rule) in the calculation of its amount.

(c) there is a receipt under any of sections 217 to 222 of CTA 2009 (receipts in respect of lease premiums, sums payable instead of rent, for surrender of lease and for variation or waiver of terms of lease and assignments) in respect of the lease, or

(d) there would be such a receipt, but for the operation of the rule in section 228 of that Act (the additional calculation rule) in the calculation of its amount.

In this Chapter a receipt falling within paragraph (a), (b), (c) or (d) is referred to as a “taxed receipt”.

(5) Condition B is that the taxed receipt, or if there is more than one, at least one of them, has an unused amount.

(6) See section 290 for an explanation of when a taxed receipt has an “unused amount”.

The additional calculation rule

288

(1) The rule in this section applies if the conditions mentioned in section 287 are met.

(2) The additional calculation rule is that the amount given by the formula in section 277, 279, 280, 281 or 282 must be reduced by the amount calculated in accordance with this section in order to give the amount of the receipt under calculation.

(3) The amount of the reduction is—

(a) if there is one taxed receipt which has an unused amount, the basic relieving amount by reference to that receipt, and

(b) if there is more than one taxed receipt which has an unused amount, the total of the basic relieving amounts by reference to each receipt,

adjusted, if necessary, in the light of section 289(5) (reduction not to exceed amount being reduced).

(4) The basic relieving amount by reference to a taxed receipt is given by the formula—

$$A×LRPTRP$where—A is the unreduced amount of the taxed receipt (which is, generally, the amount given by the formula in section 277, 279, 280, 281 or 282 above, or in section 217, 219, 220, 221 or 222 of CTA 2009, but see section 290(2) to (4) above),LRP is the receipt period of the receipt under calculation, andTRP is the receipt period of the taxed receipt.$

(5) But the basic relieving amount is different if section 289(2) or (4) applies (certain special cases).

(6) For the purposes of this Chapter, the “receipt period” of a receipt is—

(a) in the case of a receipt under section 277 or 280, the effective duration of the lease,

(b) in the case of a receipt under section 279, the period in relation to which the sum payable instead of rent is payable,

(d) in the case of a receipt under section 282, the effective duration of the lease remaining at the date of the assignment, and

(e) in the case of a receipt under Chapter 4 of Part 4 of CTA 2009 (profits of property businesses: lease premiums etc), its receipt period within the meaning of that Chapter (see section 228(6) of that Act).

The additional calculation rule: special cases

289

(1) This section explains how section 288 operates in some special cases.

(2) If—

(a) the receipt under calculation is under any of sections 277 to 281, and

(b) the lease does not extend to the whole of the premises subject to the taxed lease,

the basic relieving amount by reference to a taxed receipt is calculated by multiplying the amount given by the formula in subsection (4) of section 288 by the fraction of those premises which is subject to the lease.

(3) This fraction is calculated on a just and reasonable basis.

(4) If the basic relieving amount given by section 288(4) or subsection (2) above by reference to a taxed receipt would otherwise exceed the unused amount of the taxed receipt, the basic relieving amount is the unused amount.

(5) If the amount of the reduction under section 288 would otherwise exceed the amount given, in respect of the receipt under calculation, by the formula in section 277, 279, 280, 281 or 282, the amount of the reduction is equal to the amount given by the formula.

Meaning of “unused amount” and “unreduced amount”

290

(1) For the purposes of this Chapter, a taxed receipt has an “unused amount” if the unreduced amount exceeds the total of the reductions and deductions referred to in subsection (5).

(2) In this Chapter the “unreduced amount” of a taxed receipt is the amount given, in respect of the taxed receipt, by the formula in—

(a) section 277, 279, 280, 281 or 282 above, or

(b) section 217, 219, 220, 221 or 222 of CTA 2009 (corporation tax provisions corresponding to those listed in paragraph (a)).

(3) Subsection (4) applies—

(a) to a taxed receipt under section 277 (lease premiums) as a result of section 278 (amount treated as lease premium where work required), and

(b) to a taxed receipt under section 217 of CTA 2009 (lease premiums) as a result of section 218 of that Act (amount treated as lease premium where work required).

(4) If the obligation to carry out work included the carrying out of work which gives, or will give, rise to qualifying expenditure under CAA 2001, the unreduced amount of the taxed receipt is calculated as if the obligation had not included the carrying out of that work.

(5) The reductions and deductions mentioned in subsection (1) are—

(a) the reductions under section 288 above or section 228 of CTA 2009 (the additional calculation rule) by reference to the taxed receipt,

(b) the deductions allowed in calculating the profits of a trade, profession or vocation for expenses under section 61 above or section 63 of CTA 2009 (tenant under taxed lease who uses land in connection with trade treated as incurring expenses) by reference to the taxed receipt, and

(c) the deductions allowed in calculating the profits of a property business for expenses under section 292 below or section 232 of CTA 2009 (tenant under taxed lease who uses premises for purposes of property business treated as incurring expenses) by reference to the taxed receipt.

(6) For the purposes of this Chapter references to a reduction under section 288 above or section 228 of CTA 2009 by reference to a taxed receipt are to a reduction under the section concerned so far as attributable to the taxed receipt.

Deductions in relation to certain receipts

Deductions for expenses under section 292

291

(1) Section 292 (tenants under taxed leases treated as incurring expenses) applies in calculating the profits of a property business carried on by the tenant under a taxed lease for the purpose of making deductions for the expenses of the property business.

(2) A deduction is allowed for an expense under section 292 for a qualifying day on which the whole or part of the premises subject to the taxed lease is—

(a) occupied by the tenant for the purpose of carrying on the property business, or

(b) sublet.

(3) But any deduction for an expense under section 292 is subject to the application of any provision of Chapter 4 of Part 2 (as applied to property businesses by section 272).

(4) The amount of the deduction for an expense under section 292 for a qualifying day by reference to a taxed receipt may be reduced in order to comply with section 295 (limit on reductions and deductions).

(5) For the meaning of expressions used in this section, see in particular—

section 287(4) (“taxed lease”), and

section 287(4) (“taxed receipt”).

Tenants under taxed leases treated as incurring expenses

292

(1) The tenant under a taxed lease is treated as incurring an expense of a revenue nature in respect of the premises subject to the taxed lease for each qualifying day.

(2) If there is more than one taxed receipt, this section applies separately in relation to each of them.

(3) A day is a “qualifying day”, in relation to a taxed receipt, if it falls within the receipt period of the taxed receipt.

(4) The amount of the expense for the qualifying day by reference to the taxed receipt is given by the formula—

$$ATRP$where—A is the unreduced amount of the taxed receipt, andTRP is the number of days in the receipt period of the taxed receipt.$

(4A) No expense is to be determined under this section by reference to the taxed receipt if subsection (4B) or (4C) applies.

(4B) This subsection applies if there would have been no taxed receipt but for the application of Rule 1 in section 303 in determining the effective duration of the lease.

(4C) This subsection applies if there would have been no taxed receipt but for the application of Rule 1 in section 243 of CTA 2009 in determining the effective duration of the lease for the purposes of Chapter 4 of Part 4 of that Act.

(5) This section is subject to sections 293 and 294 (restrictions on expenses where the additional calculation rule is relevant).

(6) For the meaning of expressions used in this section, see in particular—

section 288(6) (“receipt period”), and

section 290(2) to (4) (“unreduced amount”).

Restrictions on section 292 expenses: the additional calculation rule

293

(1) This section applies if—

(a) in calculating the amount of a receipt under this Chapter there is a reduction under section 288 (the additional calculation rule) by reference to a taxed receipt, or

(b) in calculating the amount of a receipt under Chapter 4 of Part 4 of CTA 2009 (profits of a property business: lease premiums etc) there is a reduction under section 228 of that Act (the additional calculation rule) by reference to a taxed receipt.

The receipt that is so reduced is referred to in this section as the “lease premium receipt”.

(2) Subsections (3) to (5) provide for the application of section 292 for a qualifying day that falls within the receipt period of the lease premium receipt.

(3) The tenant under the taxed lease is treated as incurring an expense under section 292 for the qualifying day by reference to the taxed receipt only if the daily amount of the taxed receipt exceeds the daily reduction of the lease premium receipt.

(4) If the condition in subsection (3) is met, the amount of the expense under section 292 for the qualifying day by reference to the taxed receipt is equal to that excess.

(5) If the qualifying day falls within the receipt periods of more than one lease premium receipt, the reference in subsection (3) to the daily reduction of the lease premium receipt is to be read as a reference to the total of the daily reductions of each of the lease premium receipts whose receipt period includes the qualifying day.

(6) In this section—

the “daily amount” of the taxed receipt is given by the formula—$ATRP$where—A is the unreduced amount of the taxed receipt (see section 290(2) to (4)), andTRP is the number of days in the receipt period of the taxed receipt, and

the “daily reduction” of a lease premium receipt is given by the formula—$ARRRP$where—AR is the reduction under section 288 above or section 228 of CTA 2009 by reference to the taxed receipt (see section 290(6)), andRRP is the number of days in the receipt period of the lease premium receipt.

(7) Section 294 explains how this section operates if the lease premium receipt is in respect of a lease that has been granted out of the taxed lease and does not extend to the whole of the premises subject to the taxed lease.

Restrictions on section 292 expenses: lease of part of premises

294

(1) This section applies if—

(a) a lease has been granted out of the taxed lease,

(b) the lease does not extend to the whole of the premises subject to the taxed lease, and

(1A) The condition is that—

(a) in calculating the amount of a receipt under any of sections 277 to 281 (receipts in respect of lease premiums or sums payable instead of rent, for surrender of lease or for variation or waiver of terms of lease) in respect of the lease, there is a reduction under section 288 by reference to a taxed receipt, or

(b) in calculating the amount of a receipt under any of sections 217 to 221 of CTA 2009 (receipts in respect of lease premiums or sums payable instead of rent, for surrender of lease or for variation or waiver of terms of lease) in respect of the lease, there is a reduction under section 228 of that Act (the additional calculation rule) by reference to a taxed receipt.

The receipt that is so reduced is referred to in this section as the “lease premium receipt”.

(2) Subsections (3) to (5) apply for a qualifying day that falls within the receipt period of the lease premium receipt.

(3) Sections 292 and 293 apply separately in relation to the part of the premises subject to the lease and to the remainder of the premises.

(4) If—

(a) more than one lease that does not extend to the whole of the premises subject to the taxed lease has been granted out of the taxed lease, and

(b) the qualifying day falls within the receipt period of two or more lease premium receipts that relate to different leases,

sections 292 and 293 apply separately in relation to each part of the premises subject to a lease to which such a receipt relates and to the remainder of the premises.

(5) Where sections 292 and 293 apply in relation to a part of the premises, A becomes the amount calculated by multiplying the unreduced amount of the taxed receipt by the fraction of the premises constituted by the part.

(6) This fraction is calculated on a just and reasonable basis.

Limit on effect of additional calculation rule and deductions

Limit on reductions and deductions

295

(1) The total of—

(a) the reductions under section 288 by reference to a taxed receipt, and

(b) the deductions allowed in calculating the profits of a property business for expenses under section 292 (tenant under taxed lease who uses premises for purposes of property business treated as incurring expenses) by reference to the taxed receipt,

must not exceed the amount referred to in subsection (2).

(2) The amount mentioned in subsection (1) is the difference between—

(a) the unreduced amount of the taxed receipt, and

(b) the total of the amounts mentioned in subsection (3).

(3) Those amounts are—

(a) the reductions under section 228 of CTA 2009 (the additional calculation rule) by reference to the taxed receipt,

(b) the deductions allowed in calculating the profits of a property business for expenses under section 232 of CTA 2009 (tenant under taxed lease which uses premises for purposes of property business treated as incurring expenses) by reference to the taxed receipt, and

(c) the deductions allowed in calculating the profits of a trade, profession or vocation for expenses under section 61 above or section 63 of CTA 2009 (tenant under taxed lease who uses land in connection with trade treated as incurring expenses) by reference to the taxed receipt.

Relationship with ICTA

Corporation tax receipts treated as taxed receipts

296

(1) This section applies if in respect of a lease—

(a) there is a receipt of a Schedule A business or an overseas property business (within the meaning of section 70A(4) of ICTA) as a result of section 34 or 35 of ICTA (treatment of premiums etc. as rent and assignments for profit of lease granted at an undervalue) for an accounting period ending after 5th April 2005 but before 1st April 2009, or

(b) there would be such a receipt, but for the operation of section 37(2) or (3) of ICTA (reductions in certain receipts under section 34 or 35 of ICTA).

In this Chapter such a receipt is referred to as a “corporation tax receipt”.

(2) For the purposes of this Chapter—

(a) the lease is treated as a taxed lease, and

(b) the corporation tax receipt is treated as a taxed receipt.

(3) For the purposes of this Chapter, the “receipt period” of a taxed receipt which is a corporation tax receipt is—

(a) in the case of a corporation tax receipt as a result of section 34 of ICTA, the period treated in calculating the amount of the receipt as being the duration of the lease, and

(b) in the case of a corporation tax receipt as a result of section 35 of ICTA, the period treated in calculating the amount of the receipt as being the duration of the lease remaining at the date of the assignment.

(4) For the purposes of this Chapter the “unreduced amount” of a taxed receipt which is a corporation tax receipt is the amount of the corporation tax receipt as a result of section 34 or 35 of ICTA, before the operation of section 37(2) or (3) of ICTA.

(5) Subsection (6) applies to a taxed receipt which is a corporation tax receipt arising as a result of section 34(2) of ICTA (obligation on tenant to carry out work under lease).

(6) If the obligation to carry out work includes the carrying out of work which gives, or will give, rise to qualifying expenditure under CAA 2001, the unreduced amount of the taxed receipt is calculated as if the obligation had not included the carrying out of that work.

Taking account of reductions in corporation tax receipts

297

(1) This section applies if—

(a) in calculating the amount of a corporation tax receipt, there is a reduction under section 37(2) or (3) of ICTA by reference to the amount chargeable on the superior interest for the purposes of that section, and

(b) the amount chargeable on the superior interest is the taxed receipt for the purposes of this Chapter.

(2) For the purposes of this Chapter references to a reduction under section 37(2) or (3) of ICTA in a corporation tax receipt by reference to the amount chargeable on the superior interest are to the difference between—

(a) the amount of the corporation tax receipt before the operation of section 37(2) or (3) of ICTA, and

(b) the amount of the receipt after the operation of that subsection,

so far as attributable to the amount chargeable on the superior interest for the purposes of section 37 of ICTA.

(3) In sections 290(5)(a) (meaning of “unused amount”) and 295(1)(a) (limit on reductions and deductions) references to reductions under section 288 by reference to the taxed receipt include references to reductions under section 37(2) or (3) of ICTA in corporation tax receipts by reference to the amount chargeable on the superior interest.

(4) Sections 292 to 294 apply as follows—

(a) the corporation tax receipt is treated as if it were a lease premium receipt for the purposes of sections 293 and 294,

(b) references in those sections to the reduction under section 288 by reference to the taxed receipt are, in relation to the corporation tax receipt, to the reduction under section 37(2) or (3) of ICTA by reference to the amount chargeable on the superior interest, and

(i) in the case of a corporation tax receipt as a result of section 34 of ICTA, the period treated in calculating the amount of the receipt as being the duration of the lease, and

(ii) in the case of a corporation tax receipt as a result of section 35 of ICTA, the period treated in calculating the amount of the receipt as being the duration of the lease remaining at the date of the assignment.

Taking account of deductions for rent as a result of section 37(4) or 87(2) of ICTA

298

(1) Subsection (2) applies if—

(a) in calculating the profits of a trade, profession or vocation for an accounting period ending after 5th April 2005 but before 1st April 2009, a company is treated as paying rent under section 87(2) of ICTA by reference to the amount chargeable for the purposes of that section, and

(b) the amount chargeable is the taxed receipt for the purposes of this Chapter.

(2) References in sections 290(5)(b) and 295(3)(c) to the deductions allowed for expenses under section 61 by reference to the taxed receipt include references to the deductions allowed in calculating the profits of the trade, profession or vocation for the rent that the company is treated as paying under section 87(2) of ICTA by reference to the amount chargeable.

(3) Subsection (4) applies if—

(a) in calculating the profits of a Schedule A business or an overseas property business (within the meaning of section 70A(4) of ICTA) for an accounting period ending after 5th April 2005 but before 1st April 2009, a company is treated as paying rent as a result of section 37(4) of ICTA by reference to the amount chargeable on the superior interest for the purposes of that section, and

(b) the amount chargeable on the superior interest is the taxed receipt for the purposes of this Chapter.

(4) References in sections 290(5)(c) and 295(1)(b) to the deductions allowed for expenses under section 292 by reference to the taxed receipt include references to the deductions allowed in calculating the profits of the Schedule A business or overseas property business (within the meaning of section 70A(4) of ICTA) for the rent that the company is treated as paying as a result of section 37(4) of ICTA by reference to the amount chargeable on the superior interest.

Certain administrative provisions

Payment of tax by instalments

299

(1) This section applies if—

(a) there is a receipt under section 277 (lease premiums) in respect of a premium which is payable by instalments, or

(b) there is a receipt under any of sections 279 to 281 (sums payable instead of rent, for surrender of lease or for variation or waiver of terms of lease) in respect of a sum which is payable by instalments.

(2) The person who is liable to pay tax by reference to the receipt may choose to pay the tax by such instalments as an officer of Revenue and Customs may allow.

(3) The period over which the instalments of tax must be paid—

(a) must be 8 years or less, and

(b) must end before, or at the same time as, the time when the last of the instalments mentioned in subsection (1)(a) or (b) is payable.

Statement of accuracy for purposes of section 282

300

(1) This section applies if any of the persons mentioned in subsection (3) provides an officer of Revenue and Customs with a statement showing—

(a) whether or not there is, or may be, a receipt under section 282 (assignments for profit of lease granted at undervalue), and

(b) the amount of any receipt.

(2) an officer of Revenue and Customs must certify the accuracy of the statement, if satisfied as to its accuracy.

(3) The persons referred to in subsection (1) are—

(a) the landlord who granted the lease,

(b) a person who assigned it, or

Claim for repayment of tax payable by virtue of section 284

301

(1) This section applies if—

(a) there is a receipt under section 284 (sales with right to reconveyance), and

(b) the date on which the estate or interest would fall to be reconveyed was not fixed under the terms of the sale.

(2) If the seller makes a claim, the seller must be repaid the amount by which A exceeds B, where—

A is the amount of tax paid by the seller which was payable by virtue of section 284, and

B is the amount of tax that would have been so payable if the date on which the estate or interest was reconveyed had been taken as the date fixed by the terms of the sale.

(3) The claim must be made within 4 years after the day on which the estate or interest was reconveyed.

Claim for repayment of tax payable by virtue of section 285

302

(1) This section applies if—

(a) there is a receipt under section 285 (sale and leaseback transactions), and

(b) the date for the grant of the lease was not fixed under the terms of the sale.

(2) If the seller makes a claim, the seller must be repaid the amount by which A exceeds B, where—

A is the amount of tax paid by the seller which was payable by virtue of section 285, and

B is the amount of tax that would have been so payable if the date on which the lease was granted had been taken as the date fixed by the terms of the sale.

(3) The claim must be made within 4 years after the day on which the lease was granted.

Effective duration of lease

Rules for determining effective duration of lease

303

(1) The following rules apply for determining the effective duration of a lease for the purposes of this Chapter.

Rule 1: If-

(a) the terms of the lease or any other circumstances make it unlikely that the lease will continue beyond a date before the end of the term for which the lease was granted, and

(b) the premium was not substantially greater than it would have been had the term been one ending on that date,

Rule 2: If the terms of the lease include provision for the extension of the lease beyond a given date by notice given by the tenant, account may be taken of any circumstances making it likely that the lease will be so extended.

Rule 3: If the tenant or a person connected with the tenant is, or may become, entitled to a further lease or the grant of a further lease (whenever commencing)—

(a) of the same premises, or

(b) of premises including the whole or part of the same premises,

the term of the lease may be treated as continuing until the end of the term of the further lease.

(2) The rules are to be applied in accordance with section 304.

(2A) In Rule 1 “premium” includes—

(a) an amount treated as a premium under section 278 (amount treated as lease premium where work required),

(b) a sum payable by the tenant under the terms subject to which the lease is granted instead of the whole or a part of the rent for a period,

(c) a sum payable by the tenant under the terms subject to which the lease is granted as consideration for the surrender of the lease, and

(d) a sum payable by the tenant (otherwise than by way of rent) as consideration for the variation or waiver of a term of the lease.

(3) In this section and section 304, in relation to Scotland, “term”, where referring to the duration of a lease, means period.

Applying the rules in section 303

304

(1) The rules in section 303 apply by reference to the facts known or ascertainable—

(a) at the time of the grant of the lease, or

(b) if the determination is for the purposes of section 281 (sums payable for variation or waiver of terms of lease), at the time when the contract for the variation or waiver is entered into.

(2) In applying those rules, it is assumed that all parties concerned, whatever their relationship, act as if they were at arm's length.

(3) Subsection (5) applies if—

(a) special benefits were conferred by the lease or in connection with its grant, or

(b) payments were made which one would not expect to be made by parties acting at arm's length unless such benefits had been conferred.

(4) But subsection (5) does not apply if it can be shown that the special benefits were not conferred nor the payments made for the purpose of securing—

(a) an income tax advantage in the application of this Chapter, or

(b) a corporation tax advantage in the application of Chapter 4 of Part 4 of CTA 2009 (profits of property business: lease premiums etc).

(5) In applying paragraph (b) of rule 1 in section 303, it is assumed that the special benefits would not have been conferred nor the payments made if the lease had been granted for a term ending on the date mentioned in that rule.

(6) In this section “special benefits” means benefits other than—

(a) vacant possession and beneficial occupation of the premises, or

(b) the right to receive rent at a reasonable commercial rate in respect of the premises.

Information about effective duration of lease

305

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other interpretative provisions

Provisions about premiums

306

(1) For the purposes of this Chapter, the presumption is that a sum paid on or in connection with the granting of a tenancy has been paid by way of premium.

(2) This does not apply if the sum is rent.

(3) This also does not apply so far as other sufficient consideration for the payment can be shown to have been given.

(4) In this section “sum” includes the value of any consideration.

(5) Where rule 3 in section 303 (rules for determining effective duration of lease) applies, the premium, or an appropriate part of it, payable for or in connection with either lease mentioned in that rule may be treated for the purposes of this Chapter as having been required under the other.

Interpretation

307

(1) In this Chapter “premium” includes any similar sum payable to the immediate or a superior landlord or to a person connected with such a person.

(2) In subsection (1) “sum” includes the value of any consideration.

(3) In the application of this Chapter to Scotland—

“premium” includes, in particular, a grassum payable to the landlord under the lease in respect of which the grassum is payable or the landlord under any other lease of the property, and

“reversion” means the interest of the landlord in the property subject to the lease.

(4) In the application of this Chapter to Scotland—

(a) references to a lease being granted out of a taxed lease are to the grant of a sublease of land subject to the taxed lease, and

(b) references to the lease so granted are to be read as references to the sublease.

Chapter 5 — Profits of property businesses: other rules about receipts and deductions

Furnished accommodation: receipts and deductions

Furnished lettings

308

(1) In calculating the profits of a property business which consists of or includes a furnished letting—

(a) any sum payable for the use of furniture is brought into account as a receipt, and

(b) a deduction is allowed for expenses of a revenue nature incurred in connection with the provision of furniture.

(2) But subsection (1) does not apply to receipts or expenses brought into account in calculating the profits of a trade which consists of, or involves, making furniture available for use in premises.

(3) A furnished letting is a lease or other arrangement under which—

(a) a sum is payable in respect of the use of premises, and

(b) the person entitled to the use of the premises is also entitled, in connection with that use, to the use of furniture.

(4) In this section—

(a) “premises” includes a caravan and a houseboat, and

(b) “sum” includes the value of any consideration.

Rent-a-room relief

309

(1) The rules for calculating the profits of an individual's UK property business are subject to Chapter 1 of Part 7 (rent-a-room relief).

(2) That Chapter provides relief on income from the use of furnished accommodation in the individual's only or main residence (see, in particular, sections 793 and 797).

Treatment of receipts on acquisition of business

Acquisition of business: receipts from transferor’s UK property business

310

(1) This section applies if—

(a) a person (“the transferor”) permanently ceased to carry on a UK property business at any time,

(b) at that time the transferor transferred to another (“the transferee”) the right to receive sums arising from the carrying on of any business (“the transferred business”) comprised in the transferor's UK property business, and

(2) Sums—

(a) which the transferee receives as a result of the transfer, and

(b) which are not brought into account in calculating the profits of the transferor's UK property business for any period before the cessation,

are brought into account in calculating the profits of the transferee's UK property business in the period of account in which they are received.

(3) Any sums mentioned in subsection (1)(b) which are received after the cessation of the transferor's property business are not post-cessation receipts (see Chapter 10).

(4) This section has effect as if it were contained in Chapter 10.

Reverse premiums as receipts

Reverse premiums

311

(1) This section applies if—

(a) a person receives a reverse premium, and

(b) the reverse premium is not brought into account under section 101(2) in calculating the profits of any trade carried on by the person.

(2) The person is treated as—

(a) entering into a transaction mentioned in section 264 (if the land to which the property transaction relates is in the United Kingdom) or section 265 (if that land is outside the United Kingdom), and

(b) receiving the reverse premium as a result of that transaction.

(3) Accordingly, the reverse premium is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction.

(4) Subsection (5) applies if—

(a) two or more of the parties to the property arrangements are connected persons, and

(b) the terms of those arrangements are not such as would reasonably have been expected if those persons had been dealing at arm's length.

(5) The whole amount or value of the reverse premium is brought into account in the period of account in which the property transaction is entered into.

(6) Expressions used in this section and sections 99 to 103 have the same meaning in this section as they do in those sections.

Deductions for expenditure on energy-saving items

Deduction for expenditure on energy-saving items

312

(1) This section applies if—

(a) a person carries on a property business in relation to land which consists of or includes a dwelling-house,

(b) the person incurs expenditure in acquiring and installing an energy-saving item in the dwelling-house or in a building containing the dwelling-house (see subsections (5) to (7)),

(d) a deduction for the expenditure is not prohibited by the wholly and exclusively rule but would otherwise be prohibited by the capital prohibition rule (see subsection (8)), and

(e) no allowance under CAA 2001 may be claimed in respect of the expenditure.

(2) In calculating the profits of the business, a deduction for the expenditure is allowed.

(3) But any deduction is subject to—

(a) section 313 (restrictions on the relief), and

(b) any provision made by regulations under section 314.

(4) If, on a just and reasonable apportionment of any expenditure, part of the expenditure would qualify for the relief (but the remainder would not), a deduction is allowed for that part.

(5) “Energy-saving item” means—

(a) cavity wall insulation,

(b) loft insulation, or

(c) such other descriptions of items of an energy-saving nature as are for the time being specified in regulations made by the Treasury.

(6) The Treasury may by regulations provide for an item to be treated as an energy-saving item only if it satisfies such conditions as may be—

(a) specified in, or

(b) determined in accordance with,

the regulations.

(7) The conditions may include conditions imposed by reference to information or documents issued by any body, person or organisation.

(8) In this section—

“the capital prohibition rule” means the rule in section 33 (capital expenditure), as applied by section 272, and

“the wholly and exclusively rule” means the rule in section 34 (expenses not wholly and exclusively for trade and unconnected losses), as applied by section 272.

Restrictions on relief

313

(1) This section restricts deductions that would otherwise be allowable under section 312.

(2) No deduction is allowed if, when the energy-saving item is installed, the dwelling-house—

(a) is in the course of construction, or

(b) is comprised in land in which the person does not have an interest or is in the course of acquiring an interest or further interest.

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) No deduction is allowed if—

(a) the person derives rent-a-room receipts from the dwelling-house, and

(b) those receipts are brought into account in calculating the profits of the business in accordance with section 793 or 797 (rent-a-room relief).

(5) No deduction is allowed in respect of expenditure treated by section 57 (as applied by section 272) as incurred on the date on which the person starts to carry on the business unless the expenditure was incurred not more than 6 months before that date.

(6) No deduction is allowed in respect of expenditure incurred in acquiring and installing the energy-saving item in a building containing the dwelling-house in so far as the expenditure is not for the benefit of the dwelling-house.

Regulations

314

(1) In relation to any deduction under section 312, the Treasury may make regulations for—

(a) restricting or reducing the amount of expenditure for which the deduction is allowable,

(b) excluding entitlement to the deduction in such cases as may be specified in, or determined in accordance with, the regulations,

(c) determining who is (and is not) entitled to the deduction if different persons have different interests in land that consists of or includes the whole or part of a building containing one or more dwelling-houses,

(d) making apportionments if the property business is carried on by persons in partnership or an interest in land is beneficially owned by persons jointly or in common.

(2) The apportionments that may be made include apportionments to companies within the charge to corporation tax.

(3) Regulations under this section may—

(a) make different provision for different cases, and

(b) contain incidental, supplemental, consequential and transitional provision and savings (including provision as to appeals in relation to apportionments mentioned in subsection (1)(d)).

Deductions for expenditure on sea walls

Deduction for expenditure on sea walls

315

(1) This section applies if in a tax year a person —

(a) is the owner or tenant of any premises, and

(b) incurs expenditure in making a sea wall or other embankment necessary for the preservation or protection of the premises against the encroachment or overflowing of the sea or any tidal river.

(2) In calculating the profits of any property business carried on by the person in relation to the premises, a deduction is allowed for the expenditure in each tax year in the deduction period.

(3) The deduction period comprises—

(a) the tax year in which the expenditure is incurred, and

(b) the next 20 tax years.

(4) The amount of the deduction is 1/21 of the expenditure.

(5) No deduction is allowed for any expenditure in respect of which a capital allowance has been made.

(6) Section 316 deals with the case of an interest in the premises being transferred (and this section applies in that case as if the reference to the person in subsection (2) above included the transferor and the transferee).

(7) In calculating the profits of a property business on the cash basis, any reference in this section to the incurring of expenditure is to the paying of expenditure.

Transfer of interest in premises

316

(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—

(a) the transferor and the transferee are entitled to a part of any deduction under section 315, 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 deduction under section 315 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 315.

(5) If the interest transferred is in part of the premises—

(a) the transferor and the transferee are entitled to a part of any deduction under section 315, 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 317 (ending of lease of premises) and 318 (transfer involving company within the charge to corporation tax).

Ending of lease of premises

317

(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.

(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).

Transfer involving company within the charge to corporation tax

318

(1) This section explains how section 316 works if—

(a) the transferor is a person within the charge to income tax and the transferee is a company within the charge to corporation tax, or

(b) the transferor is a company within the charge to corporation tax and the transferee is a person within the charge to income tax.

(2) Section 316 applies only for the purpose of determining—

(a) whether the person within the charge to income tax is entitled to a deduction (or part of a deduction) under section 315, 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) under section 315, or

(b) the amount of any such deduction,

is ignored if the person is a company within the charge to corporation tax.

(4) For any entitlement of a company within the charge to corporation tax to a deduction for any of the expenditure, see sections 255 to 257 of CTA 2009 (corresponding corporation tax provision).

Mineral royalties

Relief in respect of mineral royalties

319

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Apportionments on sale of land

Nature of item apportioned on sale of estate or interest in land

320

(1) This section applies if—

(a) a person sells an estate or interest in land,

(b) on the sale a part of a receipt or outgoing in respect of the estate or interest is apportioned to the seller, and

(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

321

(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 person's property business even if a relationship of mutuality exists between that person and another.

Chapter 6 — Commercial letting of furnished holiday accommodation

Introduction

322

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Definition

Meaning of “commercial letting of furnished holiday accommodation”

323

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “relevant period” in sections 325 and 326

324

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “qualifying holiday accommodation”

325

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Under-used holiday accommodation: averaging elections

326

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Separate profit calculations

Capital allowances and loss relief

327

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Earned income and relevant UK earnings for pension purposes

328

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 7 — Adjustment income

Adjustment on change of basis

Application of Chapter

329

(1) This Chapter applies if—

(a) a person 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 income tax purposes,

(b) the old basis accorded with the law or practice applicable in relation to the period of account before the change, and

(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 for income tax purposes.

(3) Subsections (3) to (6) of section 227 (what is meant by a person 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).

Adjustment income and adjustment expense

330

(1) An amount by way of adjustment must be calculated in accordance with section 231, 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, it is treated as income and charged to income tax under this Chapter.

It is referred to in this Chapter as “adjustment income”.

(3) If the amount produced by the calculation is negative, a deduction is allowed for it in calculating the profits of the business.

It is referred to in this Chapter as an “adjustment expense”.

(4) This section is subject to section 234 (no adjustment for certain expenses previously brought into account), which applies in relation to a UK property business as it applies in relation to a trade.

Income charged

331

(1) Tax is charged under this Chapter on the full amount of any adjustment income arising in the tax year.

(2) This is subject to section 334A (spreading on leaving cash basis and related election).

Person liable

332

The person liable for any tax charged under this Chapter is the person receiving or entitled to the adjustment income.

Treatment of adjustment income and adjustment expense

Treatment of adjustment income

333

(1) Adjustment income is treated as arising on the last day of the first period of account for which the new basis is adopted.

(2) 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, adjustment income is treated as arising only when the asset to which it relates is realised or written off.

(3) Adjustment income is treated for the purposes of Part 4 of ITA 2007(loss relief) as profits of the UK property business for the tax year in which tax is charged on it.

Treatment of adjustment expense

334

(1) An adjustment expense is treated as an expense of the business arising on the last day of the first period of account for which the new basis is adopted.

(2) 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, an adjustment expense is treated as arising only when the asset to which it relates is realised or written off.

Chapter 8 — Rent receivable in connection with a UK section 12(4) concern

Charge to tax on rent receivable in connection with a UK section 12(4) concern

335

Income tax is charged on rent receivable in connection with a UK section 12(4) concern.

Meaning of “rent receivable in connection with a UK section 12(4) concern”

336

(1) For the purposes of this Chapter rent is receivable in connection with a UK section 12(4) concern if—

(a) it is receivable in respect of an estate, interest or right in or over land in the United Kingdom, and

(b) the estate, interest or right is used, occupied or enjoyed in connection with a concern listed in section 12(4).

(2) For the purposes of this Chapter rent is also receivable in connection with a UK section 12(4) concern if—

(a) it is receivable in respect of an estate, interest or right in or over land in the United Kingdom,

(b) the lease or other agreement under which it is receivable provides for its recoupment by reducing royalties or payments of a similar nature, and

(c) the reduction applies if the estate, interest or right is used, occupied or enjoyed in connection with a concern listed in section 12(4).

(3) In this Chapter “rent” includes—

(a) a receipt mentioned in section 266(3), and

(b) any other receipt in the nature of rent.

Income charged

337

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