Income Tax (Trading and Other Income) Act 2005

Chapter 5U.K.Profits of property businesses: other rules about receipts and deductions

Furnished accommodation: receipts and deductionsU.K.

308Furnished lettingsU.K.

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

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

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

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

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

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

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

(4)In this section—

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

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

[F1Furnished accommodation: wear and tear allowanceU.K.

308AWear and tear allowance electionU.K.

(1)Where—

(a)a person (“P”) carries on a property business in a tax year which consists of or includes a furnished letting, and

(b)a dwelling-house that is subject to the letting is eligible in relation to P at any time in the year,

P may make an election (a “wear and tear allowance election”) in relation to the business for the year.

(2)A wear and tear allowance election for a tax year must be made on or before the first anniversary of the normal self-assessment filing date for the tax year.

(3)In this section and sections 308B and 308C, “furnished letting” means a furnished letting as defined in section 308 but does not include a commercial letting of furnished holiday accommodation (within the meaning of Chapter 6).

(4)See—

• section 308B for the meaning of “eligible” in relation to a dwelling-house, and

  section 308C for the effect of a wear and tear allowance election.

308BMeaning of “eligible” in relation to a dwelling-houseU.K.

(1)A dwelling-house is “eligible” at any time in relation to a person (“P”) who carries on a property business in a tax year if, at that time—

(a)the dwelling-house is subject to a furnished letting comprised in the business,

(b)the dwelling-house contains sufficient furniture, furnishings and equipment for normal residential use, and

(c)P is responsible for the state of affairs mentioned in paragraph (b).

(2)P is so responsible if—

(a)any of the furniture, furnishings and equipment contained in the dwelling-house at the time mentioned in subsection (1) is provided by P,

(b)that furniture, furnishings and equipment, together with any furniture, furnishings and equipment in the dwelling-house at that time provided by a superior landlord of P, is sufficient for normal residential use, and

(c)the conditions in paragraphs (a) and (b) are not met in relation to a superior landlord of P.

(3)References in this section to a superior landlord of P are to any person who—

(a)has an interest in the dwelling-house that is superior to that of P, and

(b)carries on a property business in the tax year that consists of or includes a furnished letting to which the dwelling-house is subject.

308CEffect of wear and tear allowance electionU.K.

(1)This section applies where a person (“P”) makes a wear and tear allowance election that has effect in relation to a property business (“the property business”) for a tax year (“the tax year”).

(2)In calculating the profits of the property business for the tax year—

(a)a wear and tear allowance is allowed as a deduction, and

(b)no deduction is allowed—

(i)whether under section 68 or otherwise, for expenses incurred on replacing or altering any tool (within the meaning of subsection (3) of that section), so far as the expenses are within subsection (6), or

(ii)whether under section 308 or otherwise, for expenses incurred in connection with the provision of furniture, so far as the expenses are within subsection (6).

(3)The amount of the wear and tear allowance is 10% of the relevant rental amount.

(4)In subsection (3) “the relevant rental amount” means—

(a)the sum of the amounts brought into account as receipts by P in calculating the profits of the property business, so far as the receipts are within subsection (6), less

(b)the sum of any amounts brought into account as relevant expenses by P in calculating the profits of the property business, so far as the expenses are within subsection (6).

(5)In subsection (4)(b) “relevant expenses” means expenses in relation to utilities, council tax or anything else the cost of which is, in the case of a furnished letting, normally borne by the lessee.

(6)Receipts or expenses are within this subsection so far as they are attributable to a dwelling-house that is subject to a furnished letting comprised in the property business, but disregarding any amounts that are so attributable in respect of a time at which the dwelling-house is not eligible in relation to P.

(7)Receipts and expenses are to be attributed for the purposes of subsection (6) on a just and reasonable basis.

Furnished accommodation: rent-a-room relief]U.K.

309Rent-a-room reliefU.K.

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

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

Treatment of receipts on acquisition of businessU.K.

310Acquisition of business: receipts from transferor's UK property businessU.K.

(1)This section applies if—

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

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

(c)the transferee subsequently carries on the transferred business.

(2)Sums—

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

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

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

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

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

Reverse premiums as receiptsU.K.

311Reverse premiumsU.K.

(1)This section applies if—

(a)a person receives a reverse premium, and

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

(2)The person is treated as—

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

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

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

(4)Subsection (5) applies if—

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

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

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

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

Deductions for expenditure on energy-saving itemsU.K.

312Deduction for expenditure on energy-saving itemsU.K.

(1)This section applies if—

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

(b)the person incurs expenditure in acquiring and installing [F2an energy-saving item in the dwelling-house or in a building containing the dwelling-house ](see subsections (5) to (7)),

(c)the expenditure is incurred before 6th April [F32015] ,

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

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

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

(3)But any deduction is subject to—

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

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

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

(5)“Energy-saving item” means—

(a)cavity wall insulation,

(b)loft insulation, or

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

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

(a)specified in, or

(b)determined in accordance with,

the regulations.

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

(8)In this section—

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

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

313Restrictions on reliefU.K.

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

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

(a)is in the course of construction, or

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

(3)No deduction is allowed in respect of expenditure in a tax year if—

(a)the business consists of or includes the commercial letting of furnished holiday accommodation (see Chapter 6), and

(b)the dwelling-house constitutes some or all of that accommodation for the tax year.

(4)No deduction is allowed if—

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

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

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

[F4(6)No deduction is allowed in respect of expenditure incurred in acquiring and installing the energy-saving item in a building containing the dwelling-house in so far as the expenditure is not for the benefit of the dwelling-house.]

314RegulationsU.K.

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

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

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

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

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

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

[F5(3)Regulations under this section may—

(a)make different provision for different cases, and

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

Deductions for expenditure on sea wallsU.K.

315Deduction for expenditure on sea wallsU.K.

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

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

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

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

(3)The deduction period comprises—

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

(b)the next 20 tax years.

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

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

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

316Transfer of interest in premisesU.K.

(1)This section applies if, during the deduction period, the whole of the person's interest in the premises or in any part of them is transferred, whether by operation of law or otherwise.

(2)For the tax year in which the transfer takes place—

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

(b)the amount of the deduction is determined by what is just and reasonable.

(3)For subsequent tax years in the deduction period, the entitlement to any deduction under section 315 depends on whether the interest transferred is in the whole of the premises or in part of them.

(4)If the interest transferred is in the whole of the premises, the transferee (but not the transferor) is entitled to any deduction under section 315.

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

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

(b)the amount of the deduction is determined by reference to what is properly referable to the part of the premises.

(6)This section is supplemented by sections 317 (ending of lease of premises) and 318 (transfer involving company within the charge to corporation tax).

317Ending of lease of premisesU.K.

(1)If a person's interest in the premises is a lease that comes to an end before the end of the deduction period, the interest is treated as if transferred to the following persons.

(2)If a new lease of the premises is granted and the new tenant makes a payment in respect of the embankment in question to the old tenant, the transferee is the new tenant.

(3)Otherwise the transferee is the owner of the interest in immediate reversion on the lease (or, in Scotland, the landlord).

318Transfer involving company within the charge to corporation taxU.K.

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

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

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

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

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

(b)the amount of any such deduction.

(3)Accordingly, any reference to—

(a)whether a person is entitled to a deduction (or part of a deduction) under section 315, or

(b)the amount of any such deduction,

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

(4)For any entitlement of a company within the charge to corporation tax to a deduction for any of the expenditure, see [F6sections 255 to 257 of CTA 2009] (corresponding corporation tax provision).

Mineral royaltiesU.K.

319Relief in respect of mineral royaltiesU.K.

(1)This section applies if in a tax year a person who is UK resident, or ordinarily UK resident, carries on a UK property business the receipts of which consist of or include mineral royalties—

(a)which the person is entitled to receive under a mineral lease or agreement, and

(b)which are not chargeable to tax under Chapter 8 (rent receivable in connection with a UK section 12(4) concern).

(2)In calculating the profits of the business, the person is treated as—

(a)entitled to receive only half of the total of the mineral royalties arising under the lease or agreement in the tax year, and

(b)making in the tax year only half of the total of the payments made in respect of the management of the property concerned.

(3)Sections 341 to 343 (meaning of “mineral lease or agreement” and “mineral royalties”) apply for the purposes of this section as they apply for the purposes of Chapter 8.

Apportionments on sale of landU.K.

320Nature of item apportioned on sale of estate or interest in landU.K.

(1)This section applies if—

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

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

(c)the receipt or outgoing is receivable or to be paid by the buyer after the apportionment is made.

(2)In calculating the profits of the seller's property business, the part apportioned is treated as being of the same nature as the receipt or outgoing.

Mutual businessU.K.

321Mutual businessU.K.

(1)Nothing in this Part is to be read as applying the rules relating to mutual business to property businesses.

(2)Accordingly, receipts and expenses are to be brought into account in calculating the profits of a person's property business even if a relationship of mutuality exists between that person and another.