Finance (No. 2) Act 2017

(307A) (1) The following provisions of this Chapter apply only where the profits of a property business are calculated on the cash basis— (a) section 307B (cash basis: capital expenditure), (b) section 307C (cash basis: deduction for costs of loans), and (c) section 307D (cash basis: modification of deduction for costs of loans). (2) Sections 307E and 307F make provision about capital receipts in certain cases where the profits of a property business are calculated on the cash basis or have previously been calculated on the cash basis. (307B) (1) This section applies in relation to the calculation of the profits of a property business on the cash basis. (2) No deduction is allowed for an item of a capital nature incurred on, or in connection with, the acquisition or disposal of a business or part of a business. (3) No deduction is allowed for an item of a capital nature incurred on, or in connection with, education or training. (4) No deduction is allowed for an item of a capital nature incurred on, or in connection with, the provision, alteration or disposal of land. (5) But subsection (4) does not prevent a deduction being made for expenditure that— (a) is incurred on the provision of a depreciating asset which, in being provided, is installed or otherwise fixed to qualifying land (see subsection (8)) so as to become, in law, part of the land, but (b) is not incurred on, or in connection with, the provision of— (i) a building, (ii) a wall, floor, ceiling, door, gate, shutter or window or stairs, (iii) a waste disposal system, (iv) a sewerage or drainage system, or (v) a shaft or other structure in which a lift, hoist, escalator or moving walkway may be installed. (6) No deduction is allowed for an item of a capital nature incurred on, or in connection with, the provision, alteration or disposal of an asset for use in ordinary residential property (see subsection (8)). But see section 311A (replacement domestic items relief). (7) If an asset is provided partly for use in ordinary residential property and partly for other purposes, such apportionment of the expenditure incurred on, or in connection with, the provision, alteration or disposal of the asset is to be made for the purposes of subsection (6) as is just and reasonable. (8) In relation to the calculation of profits for a tax year— (a) “ordinary residential property” means a dwelling-house or part of a dwelling-house in relation to which an ordinary property business (see subsection (9)) is carried on in the tax year, and (b) “qualifying land” means land not falling within paragraph (a). (9) “Ordinary property business” means— (a) so much of a UK property business as does not consist of the commercial letting of furnished holiday accommodation (within the meaning of Chapter 6) in the UK, or (b) so much of an overseas property business as does not consist of the commercial letting of furnished holiday accommodation in one or more EEA states. (10) No deduction is allowed for an item of a capital nature incurred on, or in connection with, the provision, alteration or disposal of— (a) any asset that is not a depreciating asset (see subsections (11) and (12)), (b) any asset not acquired or created for use on a continuing basis in the property business, (c) a car (see subsection (20)), (d) a non-qualifying intangible asset (see subsections (13) to (16)), or (e) a financial asset (see subsection (17)). (11) An asset is a “depreciating” asset if, on the date the item of a capital nature is incurred, it is reasonable to expect that before the end of 20 years beginning with that date— (a) the useful life of the asset will end, or (b) the asset will decline in value by 90% or more. (12) The useful life of an asset ends when it could no longer be of use to any person for any purpose as an asset of a business. (13) “Intangible asset” means anything that is capable of being an intangible asset within the meaning of FRS 105 and, in particular, includes— (a) an internally-generated intangible asset, and (b) intellectual property. (14) An intangible asset is “non-qualifying” unless, by virtue of having a fixed maximum duration, it must cease to exist before the end of 20 years beginning with the date on which the item of a capital nature is incurred. (15) An intangible asset is “non-qualifying” if it consists of a right, whether conditional or not, to obtain an intangible asset without a fixed maximum duration by virtue of which that asset must, assuming the right is exercised at the last possible time, cease to exist before the end of 20 years beginning with the date on which the item of a capital nature is incurred. (16) Where— (a) the person carrying on the property business (“P”) has an intangible asset, and (b) P grants a licence or any other right in respect of that asset to another person, any intangible asset that consists of a licence or other right granted to P in respect of the intangible asset mentioned in paragraph (a) is “non-qualifying”. (17) A “financial asset” means any right under or in connection with— (a) a financial instrument, or (b) an arrangement that is capable of producing a return that is economically equivalent to a return produced under any financial instrument. (18) A reference to acquisition, provision, alteration or disposal includes potential acquisition, provision, alteration or (as the case may be) disposal. (19) If there is a letting of accommodation only part of which is furnished holiday accommodation, such apportionments as are just and reasonable in all the circumstances are to be made for the purposes of this section. (20) In this section— - “arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable); - “building” includes any fixed structure; - “car” has the same meaning as in Part 2 of CAA 2001 (see section 268A of that Act); - “financial instrument” has the same meaning as in FRS 105; - “FRS 105” means Financial Reporting Standard 105 (the Financial Reporting Standard applicable to the Micro-entities Regime), issued by the Financial Reporting Council in July 2015; - “intellectual property” means— 1. any patent, trade mark, registered design, copyright or design right, plant breeders' rights or rights under section 7 of the Plant Varieties Act 1997, 2. any right under the law of a country or territory outside the United Kingdom corresponding or similar to a right within paragraph (a), 3. any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value, or 4. any licence or other right in respect of anything within paragraph (a), (b) or (c); - “provision” includes creation, construction or acquisition. (307C) (1) Section 307D applies in calculating the profits of a property business for a tax year if conditions A to D are met. (2) Condition A is that the profits of the business are calculated on the cash basis for the tax year. (3) Condition B is that a deduction for costs of a loan is allowed in calculating the profits of the business for the tax year or, ignoring section 272A (restricting deductions for finance costs related to residential property) and section 307D (cash basis: modification of deduction for costs of loans), would be so allowed. In this section such a loan is referred to as a “relevant loan”. (4) Condition C is that an amount of the principal of one or more relevant loans is outstanding at the end time (and a relevant loan in respect of which such an amount is outstanding at the end time is referred to in this section as an “outstanding relevant loan”). (5) Condition D is that— $$L > V$where—L is the total outstanding amount of relevant loans (see subsections (6) and (7)), andV is the sum of the values of all relevant properties (see subsections (8) to (10)).$ (6) The “total outstanding amount of relevant loans”— (a) if there is only one outstanding relevant loan, is the outstanding business amount of that loan, and (b) if there are two or more outstanding relevant loans, is found by calculating the outstanding business amount of each such loan and adding those amounts together. (7) The “outstanding business amount” of a relevant loan is given by— $$X Y × A$where—A is the amount of the principal of the loan which is outstanding at the end time,X is the amount of the deduction for costs of the loan that would be allowed, apart from sections 272A and 307D, in calculating the profits of the business for the tax year, andY is the amount of the deduction for costs of the loan that would be allowed, apart from the wholly and exclusively rule and sections 272A and 307D, in calculating the profits of the business for the tax year.$ (8) A property is a “relevant property” if— (a) it is involved in the property business at the end time, or (b) although it is not involved in the business at the end time— (i) it was last involved in the business at an earlier time in the tax year, and (ii) the person carrying on the business holds the property throughout the period beginning with that earlier time and ending with the end time. (9) The “value” of a relevant property is the total of— (a) the market value of the property at the time that it is first involved in the property business, and (b) such amount of any expenditure of a capital nature incurred by the person carrying on the business in respect of the property as is not brought into account in calculating the profits of the business for the tax year or any previous tax year. (10) A property is “involved in the property business” if it is a property whose exploitation forms the whole or part of the business. (11) The “end time” is— (a) the time immediately before the end of the tax year, or (b) if in the tax year the person carrying on the business permanently ceases to carry it on, the time immediately before the person permanently ceases to carry on the business. (12) “Costs”, in relation to a loan, means— (a) interest on the loan, (b) an amount in connection with the loan that, for the person receiving or entitled to the amount, is a return in relation to the loan which is economically equivalent to interest, or (c) incidental costs of obtaining finance by means of the loan. (13) Section 58(2) to (4) (meaning of “incidental costs of obtaining finance”) apply for the purposes of subsection (12)(c). (14) In this section— - “market value”, in relation to a property, means the price which the property might reasonably be expected to fetch— 1. in the market conditions then prevailing, and 2. between persons dealing with each other at arm's length in the open market; - “property” means an estate, interest or right in or over land; - “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 272ZA (application of trading income rules: cash basis). (307D) (1) Where section 307C provides that this section applies in calculating the profits of a property business for a tax year, the amount which is allowed as a deduction for costs of a loan in calculating the profits for the tax year is the non-adjusted deduction multiplied by the relevant fraction. This is subject to section 272A (restricting deductions for finance costs related to residential property). (2) “The non-adjusted deduction” means the deduction for costs of the loan that would be allowed, apart from section 272A and this section, in calculating the profits of the business for the tax year. (3) “The relevant fraction” means— $$V L$where V and L have the same meaning as in section 307C.$ (4) For the meaning of “costs of a loan” see section 307C. (307E) (1) This section applies in relation to a property business carried on by a person in two cases— (a) Case 1 (see subsections (2) to (4)), and (b) Case 2 (see subsections (5) to (8)). (2) Case 1 is a case in which conditions A and B are met. (3) Condition A is that the person receives disposal proceeds or a capital refund in relation to an asset in a tax year for which the profits of the property business are calculated on the cash basis (see section 271D). For the meaning of “disposal proceeds” and “capital refund” see subsections (9) and (10). (4) Condition B is that— (a) an amount of capital expenditure (see subsection (11)) relating to the asset has been brought into account in calculating the profits of the property business on the cash basis, or (b) an amount of relevant capital expenditure (see subsection (17)) relating to the asset has been brought into account in calculating the profits of the property business in accordance with GAAP (see section 271B)— (i) by means of a deduction allowed under section 58 or 59 (incidental costs of obtaining finance) (as applied by section 272) or section 311A (replacement domestic items relief), or (ii) under CAA 2001 (see subsection (20)). (5) Case 2 is a case in which— (a) condition C is met, and (b) condition D or E is met. (6) Condition C is that disposal proceeds or a capital refund arise to the person in relation to an asset in a tax year— (a) for which the profits of the property business are calculated in accordance with GAAP, and (b) which is after a tax year for which the profits of the business had been calculated on the cash basis. (7) Condition D is that an amount of capital expenditure relating to the asset— (a) has been paid in a tax year for which the profits of the property business were calculated on the cash basis, (b) has been brought into account in calculating the profits of the business on the cash basis, and (c) on the assumption that the profits had not been calculated on the cash basis at the time the expenditure was paid, would not have been qualifying expenditure. (8) Condition E is that— (a) an amount of capital expenditure relating to the asset has been brought into account in calculating the profits of the property business for a tax year in accordance with GAAP by means of a deduction allowed under section 58 or 59 (as applied by section 272) or section 311A, and (b) that tax year is before the tax year for which the person last entered the cash basis. (9) “Disposal proceeds” means— (a) any proceeds arising from the disposal of an asset or any part of it, (b) any proceeds arising from the grant of any right in respect of, or any interest in, the asset, or (c) any amount of damages, proceeds of insurance or other compensation received in respect of the asset. See also section 307F for circumstances in which a person is to be regarded as disposing of an asset. (10) “Capital refund” means an amount that is (in substance) a refund of capital expenditure relating to an asset. (11) “Capital expenditure” means expenditure of a capital nature incurred, or treated as incurred, on or in connection with— (a) the provision, alteration or disposal of an asset, or (b) the potential provision, alteration or disposal of an asset. (12) The disposal proceeds or capital refund mentioned in condition A or (as the case may be) condition C are to be brought into account as a receipt in calculating the profits of the property business. (13) In a case where only part of the total capital expenditure incurred, or treated as incurred, by the person in relation to the asset has been brought into account in calculating the profits of the property business (whether or not on the cash basis), the amount brought into account under subsection (12) is proportionately reduced. The reference in this subsection to expenditure brought into account includes a reference to expenditure brought into account under CAA 2001 (see subsection (20)). (14) Subsection (12) does not apply if the whole of the amount which would otherwise be brought into account under that subsection— (a) has already been brought into account as a receipt in calculating the profits of the property business under this section, (b) is brought into account as a receipt in calculating the profits of the business under any other provision of this Part (except section 334D(4) (assets not fully paid for)), or (c) is brought into account under Part 2 or 3A of CAA 2001 as a disposal value. The reference to any other provision of this Part in paragraph (b) includes a reference to any provision applied by section 272 or 272ZA. (15) If part of the amount which would otherwise be brought into account under subsection (12) has already been or is brought into account as mentioned in subsection (14), subsection (12) applies in relation to the remainder of that amount. (16) For the purposes of this section, any question as to whether or to what extent expenditure is brought into account in calculating the profits of a property business is to be determined on such basis as is just and reasonable in all the circumstances. (17) In subsection (4)(b) “relevant capital expenditure” means capital expenditure which— (a) has been incurred (or treated as incurred) by the person before the tax year for which the person last entered the cash basis, and (b) is cash basis deductible in relation to that tax year. (18) For the purposes of this section, a person carrying on a property business “enters the cash basis” for a tax year if the profits of the business are calculated— (a) on the cash basis for the tax year, and (b) in accordance with GAAP for the previous tax year. (19) Expenditure is “cash basis deductible” in relation to a tax year if, on the assumption that the expenditure was paid in that tax year, a deduction would be allowed in respect of the expenditure in calculating the profits of the property business on the cash basis for that tax year. (20) For the purposes of this section, expenditure is “brought into account under CAA 2001” in calculating the profits of a property business if and to the extent that— (a) a capital allowance made under Part 2 of that Act in respect of the expenditure is treated as an expense in calculating those profits (see sections 248 to 250A of that Act), or (b) qualifying expenditure (within the meaning of Part 2 of CAA 2001) is allocated to a pool for a relevant qualifying activity and is set-off against different disposal receipts. (21) An amount of qualifying expenditure is “set-off against different disposal receipts” if— (a) the amount would have been unrelieved qualifying expenditure carried forward in the pool for the relevant qualifying activity, but (b) the amount is not so carried forward because (and only because) one or more disposal values in respect of one or more assets, other than the asset in respect of which the qualifying expenditure was incurred (or treated as incurred), have at any time been brought into account in that pool. (22) For the purposes of subsections (20) and (21), an activity is a “relevant qualifying activity” if— (a) it is a qualifying activity mentioned in section 15(1)(b) to (da) of CAA 2001 (property business activities), and (b) the property business consists of or includes that qualifying activity. (23) For the purposes of subsection (21), an amount of qualifying expenditure incurred (or treated as incurred) by a person is not to be regarded as not carried forward because the person enters the cash basis. (24) In this section— - “disposal value” means— 1. in subsection (14)(c)— 1. a disposal value for the purposes of Part 2 of CAA 2001 (see, in particular, section 61 of that Act), or 2. proceeds from a balancing event for the purposes of Part 3A of that Act (see section 360O of that Act), and 2. in subsection (21), a disposal value for the purposes of Part 2 of that Act; - “pool” means the main pool or a class pool to which qualifying expenditure is allocated under Part 2 of CAA 2001 (see section 54 of that Act); - “provision” includes creation, construction or acquisition; - “qualifying expenditure” means qualifying expenditure within the meaning of Part 2 of CAA 2001 (see section 11(4) of that Act for the general rule); - “unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of Part 2 of CAA 2001 (see section 59(1) and (2) of that Act). (307F) (1) This section makes provision supplementary to section 307E. (2) If— (a) at any time a person ceases to use an asset or any part of it for the purposes of a property business (other than in the circumstances mentioned in subsection (5)), but (b) the person does not dispose of the asset (or that part) at that time, the person is to be regarded for the purposes of section 307E as disposing of the asset (or that part) at that time for an amount equal to the market value amount. (3) If at any time there is a material increase in the person's non-business use of an asset or any part of it, the person is to be regarded for the purposes of section 307E as disposing of the asset (or that part) at that time for an amount equal to the relevant proportion of the market value amount. (4) For the purposes of subsection (3)— (a) there is an increase in a person's non-business use of an asset (or part of an asset) if— (i) the proportion of the person's use of the asset (or that part) that is for the purposes of the property business decreases, and (ii) the proportion of the person's use of the asset (or that part) that is for other purposes (the “non-business use”) increases; (b) “the relevant proportion” is the difference between— (i) the proportion of the person's use of the asset (or part of the asset) that is non-business use, and (ii) the proportion of the person's use of the asset (or that part) that was non-business use before the increase mentioned in subsection (3). (5) If— (a) the property business in respect of which capital expenditure relating to an asset has been brought into account as mentioned in section 307E is an overseas property business, and (b) there is a move overseas, the person is to be regarded for the purposes of section 307E as disposing of the asset at the time of the move overseas for an amount equal to the market value amount. (6) For the purposes of subsection (5) there is a “move overseas” if— (a) the person ceases to be UK resident, or (b) the tax year is, as respects the person, a split year, and the overseas part of the tax year is the later part. (7) The move overseas occurs— (a) in a case falling within subsection (6)(a), on the last day of the tax year for which the person is UK resident, or (b) in a case falling within subsection (6)(b), on the last day of the UK part of the tax year. (8) In this section— - “capital expenditure” has the same meaning as in section 307E, - “market value amount” means the amount that would be regarded as normal and reasonable— 1. in the market conditions then prevailing, and 2. between persons dealing with each other at arm's length in the open market.

24

In section 311A (replacement domestic items relief), in subsection (15)—

• (a) for the definition of “the capital expenditure rule” substitute—

“the capital expenditure rule” means— (a) in relation to a property business whose profits are calculated in accordance with GAAP, section 33 (capital expenditure), as applied by section 272, and (b) in relation to a property business whose profits are calculated on the cash basis, section 307B (cash basis: capital expenditure);

;

• (b) in the definition of “the wholly and exclusively rule”—

• (i) omit “the rule in”, and

• (ii) after “section 272” insert “ or 272ZA ”.

25

In section 315 (deduction for expenditure on sea walls), after subsection (6) insert—

(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.

26

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

27

After section 329 insert—

(329A) This Chapter applies if— (a) the profits of a property business are calculated— (i) on the cash basis for a tax year (see section 271D), and (ii) in accordance with GAAP (see section 271B) for the following tax year, or (b) the profits of a property business are calculated— (i) in accordance with GAAP for a tax year, and (ii) on the cash basis for the following tax year.

28

In section 331 (income charged)—

• (a) the existing text becomes subsection (1), and

• (b) after that subsection insert—

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

29

After section 334 insert—

(334A) Sections 239A (spreading on leaving cash basis) and 239B (election to accelerate charge under section 239A) apply for the purposes of this Chapter as they apply for the purposes of Chapter 17 of Part 2, but as if— (a) for section 239A(1) there were substituted— (1) This section applies if the profits of a property business are calculated— (a) on the cash basis for a tax year (see section 271D), and (b) in accordance with GAAP (see section 271B) for the following tax year. (b) any reference to section 239A or 239B were to the section concerned as applied by this section. (334B) For the purposes of this Chapter, a person carrying on a property business enters the cash basis for a tax year if the profits of the business are calculated— (a) on the cash basis for the tax year (see section 271D), and (b) in accordance with GAAP (see section 271B) for the previous tax year. (334C) (1) This section applies if— (a) a person carrying on a property business enters the cash basis for a tax year (“the current tax year”), and (b) the person would, apart from section 59(4A) of CAA 2001, have unrelieved qualifying expenditure relating to a relevant property business activity to carry forward from the chargeable period which is the previous tax year. (2) But this section does not apply if section 334D applies. (3) In calculating the profits of the property business for the current tax year, a deduction is allowed for any cash basis deductible amount of the expenditure relating to each relevant property business activity. (4) A “cash basis deductible amount” of the expenditure means any amount of the expenditure for which a deduction would be allowed in calculating the profits of the property business on the cash basis on the assumption that the expenditure was paid in the current tax year. (5) Any cash basis deductible amount of the expenditure is to be determined on such basis as is just and reasonable in all the circumstances. (6) In this section— - “relevant property business activity” means— 1. in relation to a UK property business, an ordinary UK property business and a UK furnished holiday lettings business (within the meaning of Part 2 of CAA 2001 (see sections 16 and 17 of that Act)), and 2. in relation to an overseas property business, an ordinary overseas property business and an EEA furnished holiday lettings business (within the meaning of Part 2 of that Act (see sections 17A and 17B of that Act)); - “unrelieved qualifying expenditure” means unrelieved qualifying expenditure for the purposes of Part 2 of CAA 2001 (see section 59(1) and (2) of that Act). (334D) (1) This section applies if— (a) a person carrying on a property business enters the cash basis for a tax year (“the current tax year”), (b) at any time before the end of the chargeable period which is the previous tax year the person has incurred relevant expenditure, and (c) not all of the relevant expenditure has actually been paid by the person. (2) “Relevant expenditure” means expenditure on plant or machinery— (a) for which a deduction would be allowed in calculating the profits of the property business on the cash basis on the assumption that the expenditure was paid in the current tax year, and (b) in respect of which the person has obtained capital allowances. (3) If the amount of the relevant expenditure that the person has actually paid exceeds the amount of capital allowances given in respect of the relevant expenditure, the difference is to be deducted in calculating the profits of the property business for the current tax year. (4) If the amount of the relevant expenditure that the person has actually paid is less than the amount of capital allowances given in respect of the relevant expenditure, the difference is to be treated as a receipt in calculating the profits of the property business for the current tax year. (5) Any question as to whether or to what extent expenditure is relevant expenditure, or as to whether or to what extent any capital allowance obtained is in respect of relevant expenditure, is to be determined on such basis as is just and reasonable in all the circumstances. (6) If the amount of capital allowances given in respect of the relevant expenditure has been reduced under section 205 or 207 of CAA 2001 (reduction where asset provided or used only partly for qualifying activity), the amount of the relevant expenditure that the person has actually paid is to be proportionately reduced for the purposes of this section. (334E) (1) This section applies if— (a) a person carrying on a property business enters the cash basis for a tax year, (b) the person is the successor for the purposes of section 266 of CAA 2001, and (c) as a result of an election under that section, relevant plant or machinery is treated as sold by the predecessor to the successor at any time during the tax year. (2) The provisions of this Chapter have effect in relation to the successor as if everything done to or by the predecessor had been done to or by the successor. (3) Any expenditure actually incurred by the successor on acquiring the relevant plant or machinery is to be ignored for the purposes of calculating the profits of the property business for the tax year. (4) In this section— - “the predecessor” has the same meaning as in section 266 of CAA 2001, and - “relevant plant or machinery” has the same meaning as in section 267 of that Act.

30

In section 351 (income charged), after subsection (2) insert—

(3) Further to subsection (2), section 254 applies for the purposes of this Chapter as if for subsection (2A) of that section there were substituted— (2A) If the time immediately before the person permanently ceases to carry on the UK property business falls in a cash basis tax year, assume for the purposes of subsection (2) that the profits of the business are calculated on the cash basis. (4) For the purposes of sections 254 (as so applied) and 353, a tax year is “a cash basis tax year” in relation to a property business if the profits of the business for the tax year are calculated on the cash basis (see section 271D).

31

In section 353 (basic meaning of “post-cessation receipt”), after subsection (1) insert—

(1A) If the time immediately before a person permanently ceases to carry on a UK property business falls in a cash basis tax year (see section 351(4)), a sum is to be treated as a post-cessation receipt only if it would have been brought into account in calculating the profits of the business on the cash basis had it been received at that time.

32

In section 356 (application to businesses within the charge to corporation tax), in subsection (1), for “section 355” substitute “ sections 353(1A) and 355, and in the modification of section 254 in section 351(3) ”.

33

In section 786 (meaning of “rent-a-room receipts”), after subsection (6) insert—

(6A) Subsections (6B) and (7) apply if— (a) the receipts would otherwise be brought into account in calculating the profits of a UK property business, and (b) the profits are calculated on the cash basis (see section 271D). (6B) Any amounts brought into account under section 307E (capital receipts under, or after leaving, cash basis) as a receipt in calculating the profits of the property business are to be treated as receipts within paragraph (a) of subsection (1) above.

34

In section 860 (adjustment income), in subsection (5), after “Chapter 17 of Part 2” insert “ , or under section 239B as applied to property businesses by section 334A, ”.

35

In section 866 (employee benefit contributions: non-trades and non-property businesses), in subsection (7)(b), for “section 272” substitute “ sections 272 and 272ZA ”.

36

In section 867 (business entertainment and gifts: non-trades and non-property businesses), in subsection (7)(b), for “section 272” substitute “ sections 272 and 272ZA ”.

37

In section 868 (social security contributions: non-trades etc), in subsection (6)(b), for “section 272” insert “ sections 272 and 272ZA ”.

38

In section 869 (penalties, interest and VAT surcharges: non-trades etc), in subsection (6)(b), for “section 272” substitute “ sections 272 and 272ZA ”.

39

In section 870 (crime-related payments: non-trades and non-property businesses), in subsection (4)(b), for “section 272” substitute “ sections 272 and 272ZA ”.

40

In section 872 (losses calculated on same basis as miscellaneous income), in subsection (4)(b), for “section 272” substitute “ sections 272 and 272ZA ”.

41

In Part 2 of Schedule 4 (index of defined expressions), at the appropriate place insert—

the cash basis (in Part 3)	section 271D
in accordance with GAAP (in Part 3)	section 271B

.

PART 3 — Trades etc: amendments of other Acts

TMA 1970

42

In section 42 of TMA 1970 (procedure for making claims etc), in subsection (7)(e), after “194” insert “ , 271A(10) ”.

TCGA 1992

43

TCGA 1992 is amended as follows.

44

In section 37 (consideration chargeable to tax on income), after subsection (1) insert—

(1A) There is to be excluded from the consideration for a disposal of an asset taken into account in the computation of the gain a sum equal to any amount that is taken into account by the person making the disposal as a receipt under section 96A or 307E of ITTOIA 2005 (capital receipts under, or after leaving, cash basis) as a result of the operation of any deemed disposal provision in relation to the asset. (1B) But subsection (1A) applies only to the extent that the sum has not been excluded from the consideration for an earlier disposal of the asset. (1C) The following are “deemed disposal provisions”— (a) in relation to trades, professions and vocations, subsections (4) and (5) of section 96A of ITTOIA 2005 (which provide for circumstances in which a person is to be regarded as disposing of an asset for the purposes of that section), and (b) in relation to property businesses, section 307F of ITTOIA 2005 (which provides for circumstances in which a person is to be regarded as disposing of an asset for the purposes of section 307E of that Act).

45

• (1) Section 41 (restriction of losses by reference to capital allowances etc) is amended as follows.

• (2) In subsection (4), after paragraph (a) insert—

(zaa) any deduction allowable in respect of capital expenditure in calculating profits on the cash basis (see sections 33A and 307B of ITTOIA 2005),

.

• (3) After subsection (6) insert—

(6A) Where— (a) capital allowances have been made or may be made in respect of expenditure, and (b) the capital allowances include a deduction mentioned in subsection (4)(zaa), the capital allowances to be taken into account under this section are to be regarded as equal to the total amount of expenditure which has qualified for capital allowances less any balancing charge to which the person making the disposal is liable under the Capital Allowances Act.

• (4) In subsection (7), after “Capital Allowances Act,” insert “ and subsection (6A) does not apply, ”.

• (5) After subsection (8) insert—

(9) In this section— (a) in relation to a trade, profession or vocation, references to calculating profits on the cash basis are to calculating the profits of a trade, profession or vocation in relation to which an election under section 25A of ITTOIA 2005 (cash basis for trades) has effect, and (b) in relation to a property business, references to calculating profits on the cash basis are to be construed in accordance with section 271D of that Act (calculation of profits of property businesses on the cash basis). (10) In this section— - “capital expenditure” means expenditure of a capital nature incurred on, or in connection with, the creation, construction, acquisition, alteration or disposal of an asset, and - “property business” means a UK property business or an overseas property business within the meaning of Part 3 of ITTOIA 2005 (see sections 264 and 265 of that Act).

46

• (1) Section 47A (exemption for disposals by persons using cash basis) is amended as follows.

• (2) For the heading substitute “ Exemption for certain disposals under, or after leaving, cash basis ”.

• (3) In subsection (1), for “A to D” substitute “ A, B and D ”.

• (4) For subsection (2) substitute—

(2) Condition A is that the asset is not land.

• (5) In subsection (3), for “or vocation” substitute “ , vocation or property business ”.

• (6) Omit subsection (4).

• (7) For subsection (5) substitute—

(5) Condition D is that relevant disposal proceeds— (a) are brought into account as a receipt (whether or not on the cash basis) under section 96A(3I) of ITTOIA 2005 in calculating the profits of a trade, profession or vocation (capital receipts under, or after leaving, cash basis: trades, professions and vocations), or (b) are brought into account as a receipt (whether or not on the cash basis) under section 307E(12) of that Act in calculating the profits of a property business (capital receipts under, or after leaving, cash basis: property businesses). (5A) “Relevant disposal proceeds” means disposal proceeds as mentioned in section 96A(3F) of ITTOIA 2005 or (as the case may be) section 307E(9) of that Act which arise from the disposal mentioned in subsection (1).

• (8) For subsection (6) substitute—

(6) Subsection (7) applies in the case of the disposal of, or of an interest in, an asset— (a) which, in the period of ownership of the person making the disposal— (i) has been used partly for the purposes of the trade, profession or vocation and partly for other purposes, or (ii) has been used for the purposes of the trade, profession or vocation for part of that period, or (b) expenditure on which by the person has qualified in part only for capital allowances.

• (9) In subsection (7)—

• (a) in paragraph (a), for “was, or (as the case may be)” to the end substitute “ qualified for capital allowances ”, and

• (b) in paragraph (c), at the end insert “, or to the expenditure qualifying for capital allowances.

• (10) After subsection (7) insert—

(8) In this section “property business” means a UK property business or an overseas property business within the meaning of Part 3 of ITTOIA 2005 (see sections 264 and 265 of that Act).

47

Section 47B (disposals made by persons after leaving cash basis) is omitted.

CAA 2001

48

CAA 2001 is amended as follows.

49

In section 1 (capital allowances), omit subsections (4) and (5).

50

After section 1 insert—

(1A) (1) This section applies in relation to a chargeable period for which the profits of a trade, profession, vocation or property business (“the relevant activity”) carried on by a person are calculated on the cash basis. (2) The person is not entitled to any allowance or liable to any charge under this Act except as provided by subsections (4) and (7). (3) No disposal value is to be brought into account except as provided by subsections (5) and (8). (4) If, apart from subsection (2), the person would be entitled to an allowance in respect of expenditure incurred on the provision of a car or liable to a charge in connection with such an allowance, the person is so entitled or (as the case may be) so liable. (5) If, apart from subsection (3), a disposal value would be brought into account in respect of a car, the disposal value is brought into account in respect of the car. (6) Subsections (7) and (8) apply if— (a) a person carrying on a relevant activity incurs qualifying expenditure relating to an asset at a time when the profits of that activity are not calculated on the cash basis, (b) after incurring the expenditure, the person enters the cash basis for a tax year, and (c) no deduction would be allowed in respect of the expenditure in calculating the profits of the relevant activity on the cash basis for that tax year, on the assumption that the expenditure was paid in that tax year. (7) If, apart from subsection (2), the person would be liable to a charge in connection with allowances in respect of the qualifying expenditure mentioned in subsection (6), the person is so liable. (8) If, apart from subsection (3), a disposal value would be brought into account in respect of the asset mentioned in subsection (6), the disposal value is brought into account in respect of the asset. (9) For the purposes of this section a person carrying on a trade, profession or vocation “enters the cash basis” for a tax year if— (a) an election under section 25A of ITTOIA 2005 (cash basis for trades) has effect in relation to the trade, profession or vocation for the tax year, and (b) no such election has effect in relation to the trade, profession or vocation for the previous tax year. (10) For the purposes of this section a person carrying on a property business “enters the cash basis” for a tax year if the profits of the business are calculated— (a) on the cash basis for the tax year (see section 271D of ITTOIA 2005), and (b) in accordance with GAAP (see section 271B of that Act) for the previous tax year. (11) In this section— (a) references to calculating the profits of a trade, profession or vocation on the cash basis are to calculating the profits of a trade, profession or vocation in relation to which an election under section 25A of ITTOIA 2005 has effect, and (b) references to calculating the profits of a property business on the cash basis are to be construed in accordance with section 271D of that Act (calculation of profits of property businesses on the cash basis). (12) In this section— - “car” has the same meaning as in Part 2 (see section 268A); - “disposal value” means— 1. a disposal value for the purposes of Part 2, 4A, 5, 6, 7, 8 or 10, or 2. proceeds from a balancing event for the purposes of Part 3 or 3A; - “qualifying expenditure” means qualifying expenditure within the meaning of any Part of this Act.

51

• (1) Section 4 (capital expenditure) is amended as follows.

• (2) In subsection (2)—

• (a) omit “or” at the end of paragraph (a), and

• (b) after paragraph (a) insert—

(aa) any cash basis expenditure, other than expenditure incurred on the provision of a car, or

.

• (3) After subsection (2) insert—

(2ZA) In subsection (2)(aa)— - “cash basis expenditure” means any expenditure incurred— 1. in the case of a trade, profession or vocation, at a time when an election under section 25A of ITTOIA 2005 has effect in relation to the trade, profession or vocation, or 2. in the case of a property business, in a tax year for which the profits of the business are calculated on the cash basis (see section 271D of that Act); and - “car” has the same meaning as in Part 2 (see section 268A).

52

• (1) Section 59 (unrelieved qualifying expenditure) is amended as follows.

• (2) In subsection (4), for “no amount may be carried forward as unrelieved qualifying expenditure” substitute “ any cash basis deductible amount may not be carried forward as unrelieved qualifying expenditure in a pool for the trade, profession or vocation ”.

• (3) After subsection (4) insert—

(4A) If a person carrying on a property business enters the cash basis for a tax year, any cash basis deductible amount may not be carried forward as unrelieved qualifying expenditure in a pool for a relevant qualifying activity from the chargeable period which is the previous tax year.

• (4) Omit subsection (5).

• (5) After subsection (5) insert—

(5A) A “cash basis deductible amount” means any amount of unrelieved qualifying expenditure for which a deduction would be allowed in calculating the profits of the trade, profession, vocation or property business (as the case may be) on the cash basis on the assumption that the expenditure was paid in the tax year for which the person enters the cash basis.

• (6) In subsection (6), for “the amount of unrelieved qualifying expenditure incurred on the provision of a car” substitute “ any cash basis deductible amount ”.

• (7) For subsection (7) substitute—

(7) Subsections (9), (10) and (11) of section 1A (capital allowances and charges: cash basis) apply for the purposes of this section as they apply for the purposes of that section. (7A) In subsection (4A) “relevant qualifying activity” means— (a) in relation to a UK property business, an ordinary UK property business and a UK furnished holiday lettings business, and (b) in relation to an overseas property business, an ordinary overseas property business and an EEA furnished holiday lettings business.

53

• (1) Section 66A (persons leaving cash basis) is amended as follows.

• (2) For subsection (1) substitute—

(1) This section applies if— (a) a person carrying on a trade, profession, vocation or property business (“the business”) leaves the cash basis in a chargeable period, (b) the person has incurred expenditure at a time when the profits of the business are calculated on the cash basis, (c) some or all of the expenditure was brought into account in calculating the profits of the business on the cash basis, and (d) the expenditure would have been qualifying expenditure if the profits of the business had not been calculated on the cash basis at the time the expenditure was incurred.

• (3) In subsection (2)(a)—

• (a) for “amount of that expenditure for which” substitute “ higher of the following ”,

• (b) in sub-paragraphs (i) and (ii), at the beginning insert “ the amount of that expenditure for which ”, and

• (c) in both places, for “or vocation” substitute “ , vocation or property business ”.

• (4) After subsection (6) insert—

(7) For the purposes of this section a person carrying on a property business leaves the cash basis in a chargeable period (“tax year X”) if the profits of the business are calculated— (a) in accordance with GAAP (see section 271B of ITTOIA 2005) for tax year X, and (b) on the cash basis (see section 271D of that Act) for the previous tax year. (8) Subsection (11) of section 1A (capital allowances and charges: cash basis) applies for the purposes of this section as it applies for the purposes of that section.

54

After section 419 insert—

(419A) (1) If a person carrying on a mineral extraction trade enters the cash basis for a tax year, for the purpose of determining the person's unrelieved qualifying expenditure for the chargeable period ending with the basis period for the tax year and subsequent chargeable periods (see section 419), only the non-cash basis deductible portion of qualifying expenditure incurred before the chargeable period ending with the basis period for the tax year is to be taken into account. (2) The “non-cash basis deductible portion” of qualifying expenditure means the amount of qualifying expenditure for which no deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the tax year for which the person enters the cash basis. (3) Subsections (9) and (11) of section 1A (capital allowances and charges: cash basis) apply for the purposes of this section as they apply for the purposes of that section.

55

After section 431C insert—

(431D) (1) This section applies if— (a) a person carrying on a mineral extraction trade leaves the cash basis in a chargeable period, (b) the person has incurred expenditure at a time when an election under section 25A of ITTOIA 2005 (cash basis for trades) has effect in relation to the trade, (c) some or all of the expenditure was brought into account in calculating the profits of the trade on the cash basis, and (d) the expenditure would have been qualifying expenditure if an election under section 25A of that Act had not had effect at the time the expenditure was incurred. (2) In this section— (a) the “relieved portion” of the expenditure is the higher of the following— (i) the amount of that expenditure for which a deduction was allowed in calculating the profits of the trade, or (ii) the amount of that expenditure for which a deduction would have been so allowed if the expenditure had been incurred wholly and exclusively for the purposes of the trade; (b) the “unrelieved portion” of the expenditure is any remaining amount of the expenditure. (3) An amount of the expenditure equal to the amount (if any) by which the unrelieved portion of the expenditure exceeds the relieved portion of the expenditure is to be regarded as qualifying expenditure incurred by the person in the chargeable period. (4) For the purposes of this section a person carrying on a trade leaves the cash basis in a chargeable period if— (a) immediately before the beginning of the chargeable period an election under section 25A of ITTOIA 2005 had effect in relation to the trade, and (b) such an election does not have effect in relation to the trade for the chargeable period.

56

After section 461 insert—

(461A) (1) If a person carrying on a trade enters the cash basis for a tax year, any cash basis deductible amount may not be carried forward as unrelieved qualifying expenditure in the pool for the trade from the chargeable period ending with the basis period for the previous tax year. (2) A “cash basis deductible amount” means any amount of unrelieved qualifying expenditure for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the tax year for which the person enters the cash basis. (3) Any cash basis deductible amount is to be determined on such basis as is just and reasonable in all the circumstances. (4) Subsections (9) and (11) of section 1A (capital allowances and charges: cash basis) apply for the purposes of this section as they apply for the purposes of that section.

57

After section 462 insert—

(462A) (1) This section applies if— (a) a person carrying on a trade leaves the cash basis in a chargeable period, (b) the person has incurred expenditure at a time when an election under section 25A of ITTOIA 2005 (cash basis for trades) has effect in relation to the trade, (c) some or all of the expenditure was brought into account in calculating the profits of the trade on the cash basis, and (d) the expenditure would have been qualifying expenditure if an election under section 25A of that Act had not had effect at the time the expenditure was incurred. (2) In this section the “relieved portion” of the expenditure is the higher of the following— (a) the amount of that expenditure for which a deduction was allowed in calculating the profits of the trade, or (b) the amount of that expenditure for which a deduction would have been so allowed if the expenditure had been incurred wholly and exclusively for the purposes of the trade. (3) For the purposes of determining the person's available qualifying expenditure in the pool for the trade for the chargeable period (see section 456)— (a) the whole of the expenditure must be allocated to the pool for the trade in that chargeable period, and (b) the available qualifying expenditure in that pool is reduced by the relieved portion of that expenditure. (4) For the purposes of determining any disposal values (see section 462), the expenditure incurred by the person is to be regarded as qualifying expenditure. (5) For the purposes of this section a person carrying on a trade leaves the cash basis in a chargeable period if— (a) immediately before the beginning of the chargeable period an election under section 25A of ITTOIA 2005 had effect in relation to the trade, and (b) such an election does not have effect in relation to the trade for the chargeable period.

58

After section 475 insert—

(475A) (1) If a person carrying on a trade enters the cash basis for a tax year, any cash basis deductible amount may not be carried forward as unrelieved qualifying expenditure in the pool for the trade from the chargeable period ending with the basis period for the previous tax year. (2) A “cash basis deductible amount” means any amount of unrelieved qualifying expenditure for which a deduction would be allowed in calculating the profits of the trade on the cash basis on the assumption that the expenditure was paid in the tax year for which the person enters the cash basis. (3) Any cash basis deductible amount is to be determined on such basis as is just and reasonable in all the circumstances. (4) Subsections (9) and (11) of section 1A (capital allowances and charges: cash basis) apply for the purposes of this section as they apply for the purposes of that section.

59

After section 477 insert—

(477A) (1) This section applies if— (a) a person carrying on a trade leaves the cash basis in a chargeable period, (b) the person has incurred expenditure at a time when an election under section 25A of ITTOIA 2005 (cash basis for trades) has effect in relation to the trade, (c) some or all of the expenditure was brought into account in calculating the profits of the trade on the cash basis, and (d) the expenditure would have been qualifying trade expenditure if an election under section 25A of that Act had not had effect at the time the expenditure was incurred. (2) In this section the “relieved portion” of the expenditure is the amount of that expenditure for which a deduction was allowed in calculating the profits of the trade. (3) For the purposes of determining the person's available qualifying expenditure in the pool for the trade for the chargeable period (see section 470)— (a) the whole of the expenditure must be allocated to the pool for the trade in that chargeable period, and (b) the available qualifying expenditure in that pool is reduced by the relieved portion of that expenditure. (4) For the purposes of determining any disposal receipts (see section 476), the expenditure incurred by the person is to be regarded as qualifying trade expenditure. (5) For the purposes of this section a person carrying on a trade leaves the cash basis in a chargeable period if— (a) immediately before the beginning of the chargeable period an election under section 25A of ITTOIA 2005 had effect in relation to the trade, and (b) such an election does not have effect in relation to the trade for the chargeable period.

ITA 2007

60

ITA 2007 is amended as follows.

61

In Part 4 (loss relief), in section 59 (overview of Part), in subsection (3)(b)—

• (a) for “section 272” substitute “ sections 272 and 272ZA ”, and

• (b) for “applies” substitute “ apply ”.

62

• (1) Chapter 4 of Part 4 (losses from property businesses) is amended as follows.

• (2) In section 120 (deduction of property losses from general income), in subsection (7), at the end insert “ and section 127BA (restriction of relief: cash basis) ”.

• (3) After section 127B insert—

(127BA) (1) This section applies if— (a) in a tax year a person makes a loss in a UK property business or overseas property business (whether carried on alone or in partnership), and (b) the profits of the business are calculated on the cash basis for the tax year (see section 271D of ITTOIA 2005). (2) No property loss relief against general income may be given to the person for the loss.

63

In Chapter 1 of Part 8 (relief for interest payments), in section 384B(1) (restriction on relief for interest payments where cash basis applies), after “for the tax year” insert “or if the profits of a UK property business or overseas property business carried on by the partnership are calculated on the cash basis for the tax year (see section 271D of ITTOIA 2005).

PART 4 — Commencement and transitional provision

64

• (1) The amendments made by this Schedule have effect for the tax year 2017-18 and subsequent tax years.

• (2) If—

• (a) disregarding this sub-paragraph, under section 33A of ITTOIA 2005, as inserted by paragraph 2 of Part 1, a deduction would not be allowed in calculating the profits of a trade, profession or vocation on the cash basis for the tax year 2017-18, but

• (b) if the amendment made by paragraph 2 were not to have effect for that tax year, that deduction would be allowed in calculating the profits of that trade, profession or vocation on that basis for that tax year,

that deduction is to be allowed in calculating the profits of that trade, profession or vocation on that basis for that tax year.

• (3) Sub-paragraph (2) is to be disregarded in determining any question as to whether or to what extent an amount of expenditure would, on the assumption that it was paid in the tax year 2017-18, be brought into account in calculating the profits of a trade, profession or vocation for the tax year 2017-18 for the purposes of—

• (a) the following provisions of CAA 2001—

• (i) section 1A (capital allowances and charges: cash basis),

• (ii) section 59 (unrelieved qualifying expenditure),

• (iii) section 419A (unrelieved qualifying expenditure: entry to cash basis),

• (iv) section 461A (unrelieved qualifying expenditure: entry to cash basis), and

• (v) section 475A (unrelieved qualifying expenditure: entry to cash basis); and

• (b) the following provisions of ITTOIA 2005—

• (i) section 96A (capital receipts under, or after leaving, cash basis),

• (ii) section 240C (unrelieved qualifying expenditure: Parts 2, 7 and 8 of CAA 2001),

• (iii) section 240CA (unrelieved qualifying expenditure: Part 5 of CAA 2001), and

• (iv) section 240D (assets not fully paid for).

• (4) But sub-paragraph (2) is not to be disregarded in determining any question as to whether or to what extent an amount of expenditure is actually brought into account in calculating the profits of a trade, profession or vocation for the tax year 2017-18 for the purposes of the provisions mentioned in paragraphs (a) and (b) of sub-paragraph (3).

SCHEDULE 3

PART 1 — Main provisions

1

In ITTOIA 2005, after section 783 insert—

(783A) (1) This Chapter gives relief to an individual on— (a) the income of a relevant trade (see section 783AA), and (b) miscellaneous income (see section 783AB). (2) If the individual qualifies for full relief (see section 783AE), the individual's relevant income (see section 783AC) is not charged to income tax (see sections 783AF and 783AG). (3) If the individual qualifies for partial relief (see section 783AH), the individual's relevant income is calculated by alternative methods (see sections 783AI to 783AK). (4) Any provision of this Chapter which gives relief is subject to sections 783AN to 783AQ, which specify circumstances in which relief under this Chapter is not given. (783AA) (1) For the purposes of this Chapter, a trade carried on by an individual is a “relevant trade” of the individual for a tax year if— (a) the individual carries on the trade otherwise than in partnership, and (b) the trade is not a rent-a-room trade in relation to the individual for the tax year. (2) For the purposes of subsection (1)(b) a trade is a “rent-a-room trade” in relation to an individual for a tax year if— (a) the individual qualifies for rent-a-room relief for the tax year, and (b) the individual has rent-a-room receipts for the tax year which would, apart from Chapter 1 of Part 7 (rent-a-room relief), be brought into account in calculating the profits of the trade. See section 783AR for definitions relevant to this subsection. (3) In this Chapter references to a trade include references to a profession or vocation. (783AB) (1) For the purposes of this Chapter, an individual's “miscellaneous income” for a tax year is all the income arising to the individual in the tax year which would be chargeable to income tax under Chapter 8 of Part 5 (income not otherwise charged) for the tax year. (2) But if— (a) the individual qualifies for rent-a-room relief for the tax year, and (b) the individual has rent-a-room receipts for the tax year which would, apart from Chapter 1 of Part 7, be chargeable to income tax under Chapter 8 of Part 5, the rent-a-room receipts are not miscellaneous income. (3) The reference in subsection (1) to the amount which would be chargeable to income tax under Chapter 8 of Part 5 is to the amount which would be so chargeable— (a) apart from this Chapter, and (b) if no deduction were made for expenses or any other matter. (783AC) (1) For the purposes of this Chapter, an individual's “relevant income” for a tax year is the sum of the following— (a) the receipts for the tax year of the individual's relevant trades for the tax year, and (b) the individual's miscellaneous income for the tax year. (2) In subsection (1)(a) the reference to the receipts of a trade for a tax year is to all the amounts which would, apart from this Chapter, be brought into account as a receipt in calculating the profits of the trade for the tax year. (783AD) (1) For the purposes of this Chapter, an individual's trading allowance for a tax year is £1,000. (2) The Treasury may by regulations amend subsection (1) so as to substitute a higher sum for the sum for the time being specified in that subsection. (783AE) (1) An individual qualifies for full relief for a tax year if— (a) the individual has relevant income for the tax year, (b) the relevant income does not exceed the individual's trading allowance for the tax year, and (c) no election by the individual under section 783AL has effect for the tax year (election for full relief not to be given). (2) An individual also qualifies for full relief for a tax year if— (a) the individual has relevant income for the tax year which consists of or includes receipts of one or more relevant trades, (b) the relevant income exceeds the individual's trading allowance for the tax year, (c) the conditions mentioned in subsection (3) are met, (d) no election by the individual under section 783AL has effect for the tax year, and (e) no election by the individual under section 783AM has effect for the tax year (election for partial relief). (3) The conditions are that— (a) no election by the individual under section 25A (cash basis for trades) has effect for the tax year, (b) the individual's relevant income would not exceed the individual's trading allowance for the tax year if it were to be assumed that an election by the individual under section 25A had effect for the tax year, (c) the individual is eligible to make an election under section 25A (see section 31A) for the tax year, and (d) if any trade carried on by the individual in the tax year was carried on in the immediately preceding tax year— (i) an election by the individual under section 25A had effect for that preceding tax year, or (ii) the individual was eligible to make such an election for that preceding tax year. (783AF) (1) This section applies if— (a) an individual qualifies for full relief for a tax year, and (b) the individual's relevant income for the tax year consists of or includes receipts of one or more relevant trades. (2) The profits or losses of each such trade for the tax year are treated as nil. (783AG) (1) This section applies if— (a) an individual qualifies for full relief for a tax year, and (b) the individual's relevant income for the tax year consists of or includes miscellaneous income. (2) The amount of— (a) the miscellaneous income arising in the tax year, less (b) any expenses associated with that income, is treated as nil. (783AH) An individual qualifies for partial relief for a tax year if— (a) the individual has relevant income for the tax year, (b) the relevant income exceeds the individual's trading allowance for the tax year, and (c) an election by the individual under section 783AM has effect for the tax year (election for partial relief). (783AI) (1) This section applies if— (a) an individual qualifies for partial relief for a tax year, and (b) the individual's relevant income for the tax year consists of or includes receipts of one or more relevant trades. (2) The profits or losses for the tax year of each of the individual's relevant trades are given by taking the following steps— - Step 1 Calculate the total of all the amounts which would, apart from this Chapter, be brought into account as a receipt in calculating the profits of the trade for the tax year. - Step 2 Subtract the deductible amount. - Step 3 Subtract from the amount given by step 2 any deduction for overlap profit allowed in calculating the profits of the trade for the tax year under section 205 (deduction for overlap profit in final tax year) or section 220 (deduction for overlap profit on change of accounting date). (3) Subject to section 783AK, the deductible amount is equal to the individual's trading allowance for the tax year. (4) “Overlap profit” has the same meaning in this section as it has in Chapter 15 of Part 2 (see sections 204 and 204A). (783AJ) (1) This section applies if— (a) an individual qualifies for partial relief for a tax year, and (b) the individual's relevant income for the tax year consists of or includes miscellaneous income. (2) The amount of miscellaneous income chargeable to income tax for the tax year is— (a) the miscellaneous income for the tax year, less (b) the deductible amount. (3) Subject to section 783AK, the deductible amount is equal to the individual's trading allowance for the tax year. (783AK) (1) This section applies where the individual's relevant income for the tax year includes— (a) receipts of a relevant trade, and (b) receipts of any other relevant trade or miscellaneous income (or both). (2) The references in section 783AI and (where it applies) section 783AJ to the deductible amount are to amounts which, in total, equal the individual's trading allowance for the tax year. (3) The question of how to allocate the individual's trading allowance for the tax year for the purposes of subsection (2) is to be decided by the individual, subject to subsections (4) and (5). (4) The deductible amount in respect of a relevant trade must not be such that the amount given by step 2 of section 783AI(2) is negative. (5) The deductible amount in respect of miscellaneous income must not be such as to result in the individual making a loss in the transactions giving rise to the miscellaneous income. (783AL) (1) An individual may elect not to be given full relief for a tax year (see sections 783AF and 783AG). (2) An election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made. (783AM) (1) An individual may elect for partial relief to be given for a tax year if the individual's relevant income for the tax year exceeds the individual's trading allowance for the tax year (see sections 783AI and 783AJ). (2) An election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made. (783AN) (1) No relief under this Chapter is given to an individual for a tax year if— (a) the individual qualifies for rent-a-room relief for the tax year, (b) the individual has rent-a-room receipts mentioned in subsection (2) for the tax year, and (c) condition A or B is met. (2) The rent-a-room receipts mentioned in subsection (1) are— (a) rent-a-room receipts which would, apart from Chapter 1 of Part 7 (rent-a-room relief), be brought into account in calculating the profits of a trade, or (b) rent-a-room receipts which would, apart from Chapter 1 of Part 7, be chargeable to income tax under Chapter 8 of Part 5 (income not otherwise charged). (3) Condition A is that— (a) the individual's total rent-a-room amount for the tax year does not exceed the individual's limit for the tax year (see section 783AR), and (b) an election by the individual under section 799 has effect to disapply full rent-a-room relief for the tax year. (4) Condition B is that— (a) the individual's total rent-a-room amount for the tax year exceeds the individual's limit for the tax year, and (b) no election by the individual under section 800 has effect to apply the alternative method of calculating profits for the tax year. (783AO) No relief under this Chapter is given to an individual for a tax year if— (a) the individual has relevant income for the tax year, and (b) the income includes a payment made by, or on behalf of, a person at a time when the individual is— (i) an employee of the person, or (ii) the spouse or civil partner of an employee of the person. (783AP) No relief under this Chapter is given to an individual for a tax year if— (a) the individual has relevant income for the tax year, and (b) the income includes a payment made by, or on behalf of, a firm at a time when the individual is— (i) a partner in the firm, or (ii) connected with a partner in the firm. (783AQ) (1) No relief under this Chapter is given to an individual for a tax year if— (a) the individual has relevant income for the tax year, and (b) the income includes a payment made by, or on behalf of, a close company at a time when the individual is— (i) a participator in the close company, or (ii) an associate of a participator in the close company. (2) In this section “associate” and “participator” have the same meanings as in Part 10 of CTA 2010 (see sections 448 and 454). (783AR) In this Chapter— (a) “rent-a-room relief”, “rent-a-room receipts” and “total rent-a-room amount” have the same meanings as in Chapter 1 of Part 7 (rent-a-room relief: see sections 784, 786 and 788), and (b) references to “the individual's limit” are to be construed in accordance with section 789 (the individual's limit for the purposes of rent-a-room relief). (783B) (1) This Chapter gives relief to an individual on certain income of a relevant property business (see sections 783BA and 783BB). (2) The form of relief depends on whether the individual's relevant property income exceeds the individual's property allowance (see sections 783BC and 783BD). (3) If the individual's relevant property income does not exceed the individual's property allowance, the income is not charged to income tax (unless the individual elects otherwise) (see sections 783BE and 783BF). (4) If the individual's relevant property income does exceed the individual's property allowance, the individual may elect for an alternative method of calculating the income (see sections 783BG to 783BI). (5) Any provision of this Chapter which gives relief is subject to sections 783BL to 783BP, which specify circumstances in which relief under this Chapter is not given. (783BA) (1) Subject to subsection (3), for the purposes of this Chapter an individual's property business is a “relevant property business” for a tax year if the business is not a rent-a-room property business in relation to the individual for the tax year. (2) For the purposes of subsection (1) a property business is a “rent-a-room property business” in relation to an individual for a tax year if— (a) the individual qualifies for rent-a-room relief for the tax year, and (b) all the receipts which would, apart from Chapter 1 of Part 7 (rent-a-room relief), be brought into account in calculating the profits of the business, are rent-a-room receipts. See section 783BQ for definitions relevant to this subsection. (3) If an individual receives— (a) property income distributions which are treated as profits of a UK property business by virtue of regulation 69Z18(1) or (2) of the AIF Regulations (property AIF distributions: liability to tax), or (b) distributions which are treated as profits of a UK property business by virtue of section 548(6) of CTA 2010 (REIT distributions: liability to tax), that separate property business (see regulation 69Z18(6) of the AIF Regulations and section 549(5) of CTA 2010) is not a relevant property business of the individual. (4) In subsection (3) “the AIF Regulations” means the Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964). (783BB) (1) For the purposes of this Chapter, the “relievable receipts” of an individual's relevant property business for a tax year are all the amounts which would, apart from this Chapter, be brought into account as a receipt in calculating the profits of the business for the tax year. This is subject to subsections (2) and (3). (2) If— (a) the individual qualifies for rent-a-room relief for the tax year, and (b) the individual has rent-a-room receipts for the tax year which would, apart from Chapter 1 of Part 7, be brought into account in calculating the profits of the property business, the rent-a-room receipts are not relievable receipts of the business. (3) Non-relievable balancing charges in respect of the property business for the tax year are not relievable receipts of the business. (4) In subsection (3) “non-relievable balancing charges”, in respect of a property business for a tax year, means balancing charges falling to be made for the tax year under Part 2 of CAA 2001 which do not relate to a business or transaction which is carried on, or entered into, for the purpose of generating receipts which are relievable receipts of the property business. (783BC) For the purposes of this Chapter, an individual's “relevant property income” for a tax year is the relievable receipts for the tax year of the individual's relevant property businesses for the tax year. (783BD) (1) For the purposes of this Chapter, an individual's property allowance for a tax year is £1,000. (2) The Treasury may by regulations amend subsection (1) so as to substitute a higher sum for the sum for the time being specified in that subsection. (783BE) An individual qualifies for full relief for a tax year if— (a) the individual has relevant property income for the tax year, (b) the relevant property income does not exceed the individual's property allowance for the tax year, and (c) no election by the individual under section 783BJ has effect for the tax year (election for full relief not to be given). (783BF) (1) If an individual qualifies for full relief for a tax year, this section applies in relation to the calculation of the profits of the individual's relevant property business for the tax year or, where the individual's relevant property income for the tax year consists of the relievable receipts of two relevant property businesses, the profits of each property business for the tax year. (2) The following are not brought into account— (a) the relievable receipts of the property business for the tax year, and (b) any expenses associated with those receipts. (783BG) An individual qualifies for partial relief for a tax year if— (a) the individual has relevant property income for the tax year, (b) the relevant property income exceeds the individual's property allowance for the tax year, and (c) an election by the individual under section 783BK has effect for the tax year (election for partial relief). (783BH) (1) If an individual qualifies for partial relief for a tax year, this section applies in relation to the calculation of the profits of the individual's relevant property business for the tax year or, where the individual's relevant property income for the tax year consists of the relievable receipts of two relevant property businesses, the profits of each property business for the tax year. (2) The relievable receipts of the property business for the tax year are brought into account. (3) No relevant expenses are brought into account. (4) The deductible amount is brought into account. (5) Subject to section 783BI, the deductible amount is equal to the individual's property allowance for the tax year. (6) In subsection (3) “relevant expenses” means all the amounts— (a) which would, apart from this section, be brought into account as a deduction in calculating the profits of the business for the tax year, and (b) which are associated with the relievable receipts. (783BI) (1) This section applies where the individual's relevant property income for the tax year consists of the relievable receipts of two relevant property businesses. (2) The references in section 783BH to the deductible amount are to amounts which, in total, equal the individual's property allowance for the tax year. (3) The question of how to allocate the individual's property allowance for the tax year for the purposes of subsection (2) is to be decided by the individual, subject to subsection (4). (4) The deductible amount in respect of a relevant property business must not be such as to result in a loss of the business. (783BJ) (1) An individual may elect not to be given full relief for a tax year (see section 783BF). (2) An election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made. (783BK) (1) An individual may elect for partial relief to be given for a tax year if the individual's relevant property income for the tax year exceeds the individual's property allowance for the tax year (see section 783BH). (2) An election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made. (783BL) No relief under this Chapter is given to an individual for a tax year if, in calculating the individual's liability to income tax for the tax year, a tax reduction under section 274A (property business: relief for non-deductible costs of a dwelling-related loan) is applied at Step 6 of the calculation in section 23 of ITA 2007. (783BM) (1) No relief under this Chapter is given to an individual for a tax year if— (a) the individual qualifies for rent-a-room relief for the tax year, (b) the individual has rent-a-room receipts for the tax year which would, apart from Chapter 1 of Part 7 (rent-a-room relief), be brought into account in calculating the profits of a property business, and (c) condition A or B is met. (2) Condition A is that— (a) the individual's total rent-a-room amount for the tax year does not exceed the individual's limit for the tax year (see section 783BQ), and (b) an election by the individual under section 799 has effect to disapply full rent-a-room relief for the tax year. (3) Condition B is that— (a) the individual's total rent-a-room amount for the tax year exceeds the individual's limit for the tax year, and (b) no election by the individual under section 800 has effect to apply the alternative method of calculating profits for the tax year. (783BN) No relief under this Chapter is given to an individual for a tax year if— (a) the individual has relevant property income for the tax year, and (b) the income includes a payment made by, or on behalf of, a person at a time when the individual is— (i) an employee of the person, or (ii) the spouse or civil partner of an employee of the person. (783BO) No relief under this Chapter is given to an individual for a tax year if— (a) the individual has relevant property income for the tax year, and (b) the income includes a payment made by, or on behalf of, a firm at a time when the individual is— (i) a partner in the firm, or (ii) connected with a partner in the firm. (783BP) (1) No relief under this Chapter is given to an individual for a tax year if— (a) the individual has relevant property income for the tax year, and (b) the income includes a payment made by, or on behalf of, a close company at a time when the individual is— (i) a participator in the close company, or (ii) an associate of a participator in the close company. (2) In this section “associate” and “participator” have the same meanings as in Part 10 of CTA 2010 (see sections 448 and 454). (783BQ) In this Chapter— (a) “rent-a-room relief”, “rent-a-room receipts” and “total rent-a-room amount” have the same meanings as in Chapter 1 of Part 7 (rent-a-room relief: see sections 784, 786 and 788), and (b) references to “the individual's limit” are to be construed in accordance with section 789 (the individual's limit for the purposes of rent-a-room relief).

PART 2 — Consequential amendments

ITTOIA 2005

2

ITTOIA 2005 is amended in accordance with paragraphs 3 to 11.

3

In section 1 (overview of Act), before paragraph (a) of subsection (5) insert—

(za) provision about a trading allowance and property allowance (see Part 6A),

.

4

In Chapter 2 of Part 2 (trading income: income taxed as trade profits), after section 22 insert—

(22A) (1) The rules for calculating the profits of a trade, profession or vocation carried on by an individual are subject to Chapter 1 of Part 6A (trading allowance). (2) That Chapter gives relief on relevant income and, where relief is given, disallows most deductions under this Part (see, in particular, sections 783AC, 783AF and 783AI).

5

In Chapter 15 of Part 2 (basis periods), after section 204 insert—

(204A) (1) This section makes provision about the amount of profit treated as arising in an overlap period which falls within the basis period of a trade for two tax years (“tax year A” and “tax year B”) where relief is given under Chapter 1 of Part 6A (trading allowance) in respect of the trade for at least one of those tax years. (2) The profit which arises in the overlap period is treated as nil if— (a) the profits or losses of the trade for tax year A or tax year B (or both) are treated as nil under section 783AF (full relief: trade profits), or (b) in relation to tax year A or tax year B (or both)— (i) section 783AI applies in calculating the profits or losses of the trade (partial relief: alternative calculation of trade profits), and (ii) the deductible amount subtracted at step 2 of section 783AI(2) in relation to the trade is greater than or equal to the non-adjusted overlap profit. (3) Subsection (6) applies if conditions 1 and 2 are met. (4) Condition 1 is that, in relation to either tax year A or tax year B— (a) section 783AI applies in calculating the profits or losses of the trade, and (b) the deductible amount subtracted at step 2 of section 783AI(2) in relation to the trade is less than the non-adjusted overlap profit. (5) Condition 2 is that neither section 783AF nor section 783AI applies in relation to the trade— (a) where condition 1 is met in relation to tax year A, for tax year B, or (b) where condition 1 is met in relation to tax year B, for tax year A. (6) The profit which arises in the overlap period is treated as equal to the non-adjusted overlap profit less the deductible amount mentioned in subsection (4)(b). (7) Subsection (8) applies if, in relation to each of tax year A and tax year B— (a) section 783AI applies in calculating the profits or losses of the trade, and (b) the deductible amount subtracted at step 2 of section 783AI(2) in relation to the trade is less than the non-adjusted overlap profit. (8) The profit which arises in the overlap period is treated as equal to the non-adjusted overlap profit less the higher of the following— (a) the deductible amount subtracted at step 2 of section 783AI(2) in calculating the profits or losses of the trade for tax year A, and (b) the deductible amount subtracted at step 2 of section 783AI(2) in calculating the profits or losses of the trade for tax year B. (9) In this section “non-adjusted overlap profit” means the amount of profit that would arise in the overlap period apart from— (a) Chapter 1 of Part 6A, and (b) this section.

6

In section 227A (application of Chapter where cash basis used), after subsection (2) insert—

(3) This section is subject to section 227C (application of Chapter where section 227B applies).

7

After section 227A insert—

(227B) (1) Subsection (2) applies if— (a) an individual carries on a trade in a tax year, and (b) the profits or losses of the trade for the tax year are treated as nil under section 783AF (trade profits: full relief under Chapter 1 of Part 6A) by virtue of the fact that the conditions in section 783AE(2) are met. (2) For the purposes of determining if this Chapter applies, an election under section 25A is to be treated as having effect in relation to the trade for the tax year. (227C) (1) This section applies if, as a result of the operation of section 227B, the basis on which profits of a trade are calculated is treated as changed as mentioned in section 227A(1). (2) This Chapter applies as if— (a) in sections 232(1) and 233(1), for “the first period of account for which the new basis is adopted” there were substituted “ the first tax year for which the profits or losses of the trade are not treated as nil under section 783AF ”, and (b) sections 235, 236, 237, 239A and 239B were omitted. (3) If there is no tax year after the change of basis for which the profits or losses of the trade are not treated as nil under section 783AF, this Chapter does not apply.

8

After section 307F (inserted by Schedule 2 to this Act) insert—

(307G) (1) The rules for calculating the profits of an individual's property business are subject to Chapter 2 of Part 6A (property allowance). (2) That Chapter gives relief on relevant property income and, where relief is given, disallows all deductions under this Part which relate to that income (see, in particular, sections 783BC, 783BF and 783BH).

9

In section 688 (income charged under Chapter 8 of Part 5), before paragraph (a) of subsection (2) insert—

(za) Chapter 1 of Part 6A (which gives relief on relevant income which may consist of or include income chargeable under this Chapter: see, in particular, sections 783AB, 783AC, 783AG and 783AJ),

.

10

In section 828 (overlap profit), in subsection (3), for “section 204” substitute “ sections 204 and 204A ”.

11

In Part 2 of Schedule 4 (defined expressions)—

• (a) at the appropriate places insert—

individual's property allowance (in Chapter 2 of Part 6A)	section 783BD
individual's trading allowance (in Chapter 1 of Part 6A)	section 783AD
miscellaneous income (in Chapter 1 of Part 6A)	section 783AB
relevant income (in Chapter 1 of Part 6A)	section 783AC
relevant property business (in Chapter 2 of Part 6A)	section 783BA
relevant property income (in Chapter 2 of Part 6A)	section 783BC
relevant trade (in Chapter 1 of Part 6A)	section 783AA
relievable receipts (in Chapter 2 of Part 6A)	section 783BB

,

• (b) in the entry for “overlap profit”, for “section 204” substitute “ sections 204 and 204A ”.

TIOPA 2010

12

In TIOPA 2010—

• (a) in section 22(8) (credit for foreign tax on overlap profit if credit for that tax already allowed), in the definition of “overlap profit”, for “section 204” substitute “ sections 204 and 204A ”, and

• (b) in section 24(8) (claw-back of relief under section 22(2)), in the definition of “overlap profit”, for “section 204” substitute “ sections 204 and 204A ”.

PART 3 — Commencement

13

The amendments made by this Schedule have effect for the tax year 2017-18 and subsequent tax years.

SCHEDULE 4

PART 1 — Amendment of general rules about carrying forward losses

Non-trading deficits from loan relationships

1

Part 5 of CTA 2009 (loan relationships) is amended as follows.

2

In the heading of Chapter 16 (non-trading deficits) at the end insert “ : pre-1 April 2017 deficits and charities ”.

3

In section 456 (introduction to Chapter 16) in subsection (1)—

• (a) after “if” insert

— (a)

, and

• (b) at the end insert

, and (b) either— (i) that accounting period begins before 1 April 2017, or (ii) at the end of that accounting period the company is a charity

.

4

After section 463 insert—