Finance Act 1998

Section 38(1).

SCHEDULE 5U.K. Rent and other receipts from land

Part IU.K. Main charging provisions

1U.K.In section 15(1) of the Taxes Act 1988 (the Schedule A charge), for Schedule A substitute—

“Schedule AU.K.

1(1)Tax is charged under this Schedule on the annual profits arising from a business carried on for the exploitation, as a source of rents or other receipts, of any estate, interest or rights in or over land in the United Kingdom.

(2)To the extent that any transaction is entered into for the exploitation, as a source of rents or other receipts, of any estate, interest or rights in or over land in the United Kingdom, it is taken to be entered into in the course of such a business.

(3)All businesses and transactions carried on or entered into by a particular person or partnership, so far as they are businesses or transactions the profits of which are chargeable to tax under this Schedule, are treated for the purposes of this Schedule as, or as entered into in the course of carrying on, a single business.

There are qualifications to this rule in the case of—

(a)companies not resident in the United Kingdom (see subsection (1A) below); and

(b)insurance companies (see sections 432AA and 441B(2A)).

(4)The receipts referred to in the expression “as a source of rents or other receipts” include—

(a)payments in respect of a licence to occupy or otherwise to use land or the exercise of any other right over land, and

(b)rentcharges, ground annuals and feu duties and other annual payments reserved in respect of, or charged on or issuing out of, the land.

2(1)This Schedule does not apply to profits arising from the occupation of land.

(2)This Schedule does not apply to—

(a)profits charged to tax under Case I of Schedule D under—

• section 53(1) (farming and market gardening), or

• section 55 (mines, quarries and other concerns);

(b)receipts or expenses taken into account as trading receipts or expenses under section 98 (tied premises);

(c)rent charged to tax under Schedule D under—

• section 119 (rent, etc. payable in connection with mines, quarries and other concerns), or

• section 120(1) (certain rent, etc. payable in respect of electric line wayleaves).

(3)The profits of a Schedule A business carried on by a company shall be computed without regard to items giving rise to—

• credits or debits within Chapter II of Part IV of the M1Finance Act 1996 (loan relationships), or

• exchange gains or losses within Chapter II of Part II of the M2Finance Act 1993 (foreign exchange gains and losses), or

• qualifying payments within Chapter II of Part IV of the M3Finance Act 1994 (interest rate and currency contracts).

This Schedule does not affect the operation of those provisions.

3(1)For the purposes of this Schedule a right to use a caravan or houseboat, where the use to which the caravan or houseboat may be put in pursuance of the right is confined to use at a single location in the United Kingdom, is treated as a right deriving from an estate or interest in land in the United Kingdom.

(2)In sub-paragraph (1)—

• “caravan” has the meaning given by section 29(1) of the M4Caravan Sites and Control of Development Act 1960; and

• “houseboat” means a boat or similar structure designed or adapted for use as a place of human habitation.

4(1)In the case of a furnished letting, any sum payable for the use of furniture shall be taken into account in computing the profits chargeable to tax under this Schedule in the same way as rent.

Expenses in connection with the provision of furniture shall similarly be taken into account in the same way as expenses in connection with the premises.

(2)A furnished letting means where—

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

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

(3)This paragraph does not apply if the receipts and expenses are taken into account in computing the profits of a trade consisting in, or involving, making furniture available for use in premises.

(4)In this paragraph—

(a)any reference to a sum includes the value of consideration other than money, and references to a sum being payable shall be construed accordingly; and

(b)“premises” includes a caravan or houseboat within the meaning of paragraph 3.”.

2U.K.In section 15 of the Taxes Act 1988 (the Schedule A charge), after subsection (1) insert—

“(1A)In the case of a company which is not resident in the United Kingdom—

(a)businesses carried on and transactions entered into by it the profits of which are within the charge to corporation tax under Schedule A, and

(b)businesses carried on and transactions entered into by it the profits of which are within the charge to income tax under Schedule A,

are treated as separate Schedule A businesses.”.

3U.K.For the heading to Part II of the Taxes Act 1988 substitute “ PROVISIONS RELATING TO THE SCHEDULE A CHARGE ”.

4U.K.For section 21 of the Taxes Act 1988 (persons chargeable and computation of amounts chargeable) substitute—

“21 Persons chargeable and basis of assessment.

(1)Income tax under Schedule A shall be charged on and paid by the persons receiving or entitled to the income in respect of which the tax is directed by the Income Tax Acts to be charged.

(2)Income tax under Schedule A is charged on the full amount of the profits arising in the year of assessment.

(3)This section does not apply for the purposes of corporation tax.

21A Computation of amount chargeable.

(1)Except as otherwise expressly provided, the profits of a Schedule A business are computed in the same way as the profits of a trade are computed for the purposes of Case I of Schedule D.

(2)The following provisions apply in accordance with subsection (1)—

• section 72 (apportionment);

• the provisions of Chapter V of Part IV (computational provisions relating to the Schedule D charge), except as mentioned in subsection (4) below;

• section 577 (business entertainment expenses);

• section 577A (expenditure involving crime);

• sections 579 and 580 (redundancy payments);

• sections 588 and 589 (training courses for employees);

• sections 589A and 589B (counselling services for employees);

• section 73(2) of the M5Finance Act 1988 (consideration for restrictive undertakings);

• section 43 of the M6Finance Act 1989 (deductions in respect of certain emoluments);

• section 76 of that Act (expenses in connection with non-approved retirement benefit schemes);

• sections 112 and 113 of that Act (expenditure in connection with provision of security asset or service);

• sections 42 and 46(1) and (2) of the Finance Act 1998 (provisions as to computation of profits and losses).

(3)Section 74(1)(d) of this Act (disallowance of provisions for future repairs) applies in relation to a Schedule A business as if the reference to premises occupied for the purposes of the trade were to premises held for the purposes of the Schedule A business.

(4)The following provisions in Chapter V of Part IV of this Act do not apply, or are excepted from applying, in accordance with subsection (1)—

• section 82 (interest paid to non-residents),

• section 87 (treatment of premiums taxed as rent),

• section 96 (farming and market gardening: relief for fluctuating profits), and

• section 98 (tied premises: receipts and expenses treated as those of trade).

21B Application of other rules applicable to Case I of Schedule D.

The following provisions apply for the purposes of Schedule A in relation to a Schedule A business as they apply for the purposes of Case I of Schedule D in relation to a trade—

• sections 103 to 106, 108, 109A and 110 (post-cessation receipts and expenses, etc.);

• section 113 (effect for income tax purposes of change in the persons engaged in carrying on trade);

• section 337(1) (effect of company beginning or ceasing to carry on trade);

• section 401(1) (pre-trading expenditure);

• section 44 of and Schedule 6 to the Finance Act 1998 (change of accounting basis).”.

5U.K.After section 21B of the Taxes Act 1988 (inserted by paragraph 4 above) insert—

“21C The Schedule A charge and mutual business.

(1)The following provisions have effect for the purpose of applying the charge to tax under Schedule A in relation to mutual business.

(2)The transactions or relationships involved in mutual business are treated as if they were transactions or relationships between persons between whom no relationship of mutuality existed.

(3)Any surplus arising from the business is regarded as a profit (and any deficit as a loss) if it would be so regarded if the business were not mutual.

(4)The person—

(a)to whom the profit arises for corporation tax purposes, or

(b)who is regarded as receiving or entitled to the profit for income tax purposes,

is the person who would satisfy that description if the business were not mutual business.

(5)Nothing in this section affects the operation of section 488 (co-operative housing associations).”.

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8U.K.In section 27 of the Taxes Act 1988 (maintenance funds for historic buildings), for subsection (3) substitute—

“(3)Where by virtue of this section an election has effect in relation to an estate part of which is comprised in a settlement—

(a)there may be treated as deductible from the receipts arising from that part—

(i)any disbursements or expenses of the trustees of the settlement which relate to the other part of the estate and which would be so deductible if that part were also comprised in the settlement, and

(ii)any disbursements or expenses of the owner of the other part of the estate to the extent to which they cannot be deducted by him in the chargeable period in which they are incurred because of an insufficiency of any receipts for that period from which they are deductible apart from this sub-paragraph;

(b)any relief available to the trustees by virtue of section 379A(2)(b) shall instead be available to the owner of the other part of the estate.

This subsection has effect subject to subsection (2A) of section 26.”.

9U.K.Section 28 of the Taxes Act 1988 (deductions from receipts other than rent) shall cease to have effect.

10U.K.Section 29 of the Taxes Act 1988 (sporting rights) shall cease to have effect.

11U.K.In section 30(1) of the Taxes Act 1988 (expenditure on sea walls)—

(a)for “for the purposes of sections 25, 28 and 31" substitute “ for the purpose of computing the profits of any Schedule A business carried on in relation to those premises ”; and

(b)for “in respect of dilapidation attributable to the year" substitute “ as an expense of the business for that year ”.

12U.K.Section 31 of the Taxes Act 1988 (provisions supplementary to sections 25 to 30) shall cease to have effect.

13U.K.Section 33 of the Taxes Act 1988 (agricultural land: allowance for excess expenditure on management) shall cease to have effect.

14U.K.Sections 33A and 33B of the Taxes Act 1988 (connected persons) shall cease to have effect.

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19U.K.For the heading before section 40 of the Taxes Act 1988 substitute “ Supplementary provisions ”.

20(1)Section 40 of the Taxes Act 1988 (tax treatment of receipts and outgoings on sale of land) is amended as follows.U.K.

(2)In subsection (1) for “become receivable or payable on his behalf" substitute “ been received or paid by him ”.

(3)In subsection (3)(b), for the words from “had become receivable" to the end substitute “ had been received or paid directly by him immediately before the time to which the apportionment is made ”.

(4)After subsection (4) insert—

“(4A)An amount deemed under this section to have been received or paid shall be taken into account in computing the profits of the Schedule A business in question for the period in which it is treated as received or paid.”.

(5)Omit subsection (5).

21U.K.Section 41 of the Taxes Act 1988 (relief for rent not paid, etc.) shall cease to have effect.

22U.K.In section 42A of the Taxes Act 1988 (non-residents and their representatives), omit subsection (8).

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25U.K.After section 70 of the Taxes Act 1988 (corporation tax: basis of assessment, etc.) insert—

“70A Case V income from land outside UK: corporation tax.

(1)This section applies where a company is chargeable to corporation tax under Case V of Schedule D in respect of income which—

(a)arises from a business carried on for the exploitation, as a source of rents or other receipts, of any estate, interest or rights in or over land outside the United Kingdom, and

(b)is not income to which section 70(2) applies (income from a trade or vocation).

(2)The provisions of Schedule A apply to determine whether income falls within subsection (1)(a) above as they would apply to determine whether the income fell within paragraph 1(1) of that Schedule if—

(a)the land in question were in the United Kingdom, or

(b)a caravan or houseboat which is to be used at a location outside the United Kingdom were to be used at a location in the United Kingdom.

(3)Any provision of the Taxes Acts which deems there to be a Schedule A business in the case of land in the United Kingdom applies where the corresponding circumstances arise with respect to land outside the United Kingdom so as to deem there to be a business within subsection (1)(a) above.

(4)All businesses and transactions carried on or entered into by a particular company or partnership, so far as they are businesses or transactions the income from which is chargeable to tax under Case V of Schedule D in accordance with this section, are treated for the purposes of the charge to tax under Case V as, or as entered into in the course of carrying on, a single business (an “overseas property business").

(5)The income from an overseas property business shall be computed for the purposes of Case V of Schedule D in accordance with the rules applicable to the computation of the profits of a Schedule A business.

Those rules apply separately in relation to—

(a)an overseas property business, and

(b)any actual Schedule A business of the company chargeable,

as if each were the only Schedule A business carried on by that company.

(6)Sections 503 and 504 of this Act and section 29 of the 1990 Act (provisions relating to furnished holiday accommodation) do not apply to the profits or losses of an overseas property business.

(7)Where under this section rules expressed by reference to domestic concepts of law apply in relation to land outside the United Kingdom, they shall be interpreted so as to produce the result that most closely corresponds with the result produced for Schedule A purposes in relation to land in the United Kingdom.”.

Part IIU.K. Treatment of losses

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Part IIIU.K. Minor and consequential amendments

Taxes Management Act 1970 (c. 9)U.K.

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Income and Corporation Taxes Act 1988 (c.1)U.K.

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44U.K.In section 787(3) of the Taxes Act 1988 (restriction of relief for payments of interest) for “section 403(7)" substitute “ section 83(2)(b) of the Finance Act 1996 (claim to treat non-trading deficit as eligible for group relief) ”.

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Capital Allowances Act 1990 (c.1)U.K.

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Taxation of Chargeable Gains Act 1992 (c.12)U.K.

62U.K.In section 241(3) of the Taxation of Chargeable Gains Act 1992 (commercial letting of furnished holiday accommodation to be treated as trade for certain purposes), for paragraph (a) substitute—

“(a)any Schedule A business (within the meaning of the Taxes Act) which consists in the commercial letting of furnished holiday accommodation in the United Kingdom shall be treated as a trade, and”.

63(1)Schedule 8 to the Taxation of Chargeable Gains Act 1992 (leases) is amended as follows.U.K.

(2)In paragraph 5 (exclusion of premiums taxed under Schedule A, etc.)—

(a)in sub-paragraphs (1) and (2), for “income tax has become chargeable under section 34 of the Taxes Act on any amount" substitute “ any amount is brought into account by virtue of section 34 of the Taxes Act as a receipt of a Schedule A business (within the meaning of that Act) ”; and

(b)in sub-paragraph (3), for “income tax has become chargeable under section 36 of the Taxes Act (sale of land with right of re-conveyance) on any amount" substitute “ any amount is brought into account by virtue of section 36 of the Taxes Act (sale of land with right of re-conveyance) as a receipt of a Schedule A business (within the meaning of that Act) ”.

(3)In paragraph 6(2), for the words from “on which tax is paid" onwards substitute “ brought into account by virtue of section 35 of the Taxes Act (charge on assignment of a lease granted at an undervalue) as a receipt of a Schedule A business (within the meaning of that Act) ”.

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(5)For paragraph 7A substitute—

“7AReferences in paragraphs 5 to 7 above to an amount brought into account as a receipt of a Schedule A business include references to an amount brought into account as a receipt of an overseas property business.”.

Finance Act 1996 (c. 8)U.K.

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Part IVU.K. Transitional provisions for corporation tax

IntroductionU.K.

65(1)This Part of this Schedule makes provision with respect to the application of the provisions of Parts I to III of this Schedule for corporation tax purposes.U.K.

(2)In this Part of this Schedule—

• “before commencement” and “after commencement” mean, respectively, before 1st April 1998 and on or after that date; and

• “the new rules” means the provisions of the Tax Acts relating to Schedule A taxation or, as the case may be, to the taxation under Case V of Schedule D of income from land outside the United Kingdom, as they have effect after commencement.

Receipts and expenses not to be counted twiceU.K.

66(1)To the extent that receipts or expenses have been taken into account before commencement, they shall not be taken into account again under the new rules after commencement.U.K.

(2)Nothing in section 43 of the M7Finance Act 1989 (computation of profits: effect of delayed payment of emoluments) shall be construed as affecting the rule in sub-paragraph (1) above.

Receipts and expenses not to be left out of accountU.K.

67U.K.To the extent that receipts or expenses would under the new rules have been brought into account before commencement, and were not so brought into account, they shall be brought into account immediately after commencement.

Expenses not to be carried back to before commencementU.K.

68U.K.Expenses which were incurred before commencement but were not taken into account before commencement shall not, by virtue of section 25(3) or 31(3) of the Taxes Act 1988, be carried back and taken into account before commencement.

Effect of transfer of underlying rightsU.K.

69U.K.If any estate, interest or rights in or over land is or are transferred from one person to another, the references in paragraphs 66 to 68 to receipts or expenses being taken into account shall be construed as references to their being taken into account in relation to either of those persons.

Bad debt reliefU.K.

70(1)Where relief under section 41 of the Taxes Act 1988 (relief for rent, etc. not paid) has been given in respect of an amount before commencement, any receipt after commencement shall be taken into account under the new rules.U.K.

(2)Any writing off of an amount after commencement shall be taken into account under the new rules, even where it relates to a receipt brought into account before commencement.

Meaning of “taken into account"U.K.

71U.K.For the purposes of paragraphs 66 to 70 an amount is “taken into account” if—

(a)it is brought into account for tax purposes, or

(b)it would have been so brought into account if the person concerned were chargeable to tax.

Unrelieved Case VI lossesU.K.

72(1)A loss to which this paragraph applies which a company would, apart from this Schedule, have been entitled to carry forward under section 396 of the Taxes Act 1988 (Case VI losses) shall be treated after commencement as a loss of an earlier period within section 392A or 392B of that Act and accordingly available to be set off under those provisions.U.K.

(2)This paragraph applies to a loss sustained in a business or transaction of a kind that after commencement would be treated as carried on or entered into in the course of a Schedule A business or overseas property business carried on by the company.

Source ceasing in transitional accounting periodU.K.

73(1)The provisions of Parts I to III of this Schedule do not apply in relation to a source which ceases in the course of a company’s transitional accounting period to be a source within the charge to tax under Schedule A or Case V or VI of Schedule D in relation to that company and any other person.U.K.

(2)This paragraph does not apply if the company acquired the source in that accounting period or in the preceding twelve months.

Superseded provisions relating to finance leasingU.K.

74(1)In Schedule 12 to the M8Finance Act 1997 (leasing arrangements: finance leases and loans), the following provisions (which apply concepts from Case I of Schedule D in relation to rent taxed under Schedule A) shall cease to have effect in accordance with this paragraph.U.K.

(2)Paragraphs 3(6), 6(9)(b), 8(1) to (7) and 20(b) do not apply in relation to periods of account beginning on or after 1st April 1998.

A “period of account” means a period for which accounts are made up.

(3)Paragraph 8(8) does not apply if the time mentioned in that provision is on or after 1st April 1998.

(4)Paragraph 8(9) does not apply if the time mentioned in paragraph (a) of that provision is on or after 1st April 1998.

Computation of amounts available for surrender as group reliefU.K.

75U.K.In computing under section 403 of the Taxes Act 1988 the amounts available for surrender as group relief in a company’s transitional accounting period, the amounts referable to the period before commencement shall be computed separately from the amounts referable to the period after commencement.

Meaning of “transitional accounting period"U.K.

76U.K.For the purposes of paragraphs 73 and 75 a “transitional accounting period” means an accounting period beginning before, and ending on or after, 1st April 1998.