Income Tax (Trading and Other Income) Act 2005

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

[F1 Cash basis: application of Chapter U.K.

Textual Amendments

F1 Ss. 307A-307F and cross-headings inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 23

307A Cash basis: application of Chapter U.K.

(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.

Property businesses using cash basis U.K.

307B Cash basis: capital expenditure U.K.

(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—

  (a)

  any patent, trade mark, registered design, copyright or design right, plant breeders' rights or rights under section 7 of the Plant Varieties Act 1997,

  (b)

  any right under the law of a country or territory outside the United Kingdom corresponding or similar to a right within paragraph (a),

  (c)

  any information or technique not protected by a right within paragraph (a) or (b) but having industrial, commercial or other economic value, or

  (d)

  any licence or other right in respect of anything within paragraph (a), (b) or (c);

• “provision” includes creation, construction or acquisition.

307C Cash basis: deduction for costs of loans U.K.

(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—

where—

L is the total outstanding amount of relevant loans (see subsections (6) and (7)), and

V 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—

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, and

Y 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—

  (a)

  in the market conditions then prevailing, and

  (b)

  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 Cash basis: modification of deduction for costs of loans U.K.

(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—

where V and L have the same meaning as in section 307C.

(4) For the meaning of “costs of a loan” see section 307C.

Property businesses that use, or have used, cash basis U.K.

307E Capital receipts under, or after leaving, cash basis U.K.

(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—

  (a)

  in subsection (14)(c)—

  (i)

  a disposal value for the purposes of Part 2 of CAA 2001 (see, in particular, section 61 of that Act), or

  (ii)

  proceeds from a balancing event for the purposes of Part 3A of that Act (see section 360O of that Act), and

  (b)

  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 Deemed capital receipts under, or after leaving, cash basis U.K.

(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—

  (a)

  in the market conditions then prevailing, and

  (b)

  between persons dealing with each other at arm's length in the open market.]

Modifications etc. (not altering text)

C1 S. 307F excluded in part (16.11.2017) by 1992 c. 12, s. 37(1A)-(1C) (as inserted (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 44)

[F2 Property allowance U.K.

Textual Amendments

F2 S. 307G and cross-heading inserted (16.11.2017) (with effect in accordance with Sch. 3 para. 13 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 3 para. 8

307G Property allowance U.K.

(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).]

Furnished accommodation: receipts and deductions U.K.

308 Furnished lettings U.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 [F3 of a revenue nature] incurred in connection with the provision of furniture.

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

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

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

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

(4) In this section—

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

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

Textual Amendments

F3 Words in s. 308(1)(b) inserted (with effect in accordance with s. 73(8)(9) of the amending Act) by Finance Act 2016 (c. 24), s. 73(4)

F4 ... U.K.

Textual Amendments

F4 Ss. 308A-308C and cross-heading omitted (with effect in accordance with s. 74(2) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 74(1)(a)

F4

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F4

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

F4

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

[F5 Furnished accommodation: rent-a-room relief] U.K.

Textual Amendments

F5 Ss. 308A-308C and cross-heading inserted (with effect in accordance with art. 13(1) of the amending S.I.) by The Enactment of Extra-Statutory Concessions Order 2011 (S.I. 2011/1037), arts. 1, 11(2)

309 Rent-a-room relief U.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 business U.K.

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

311 Reverse premiums U.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.

[F6 Deduction for replacement of domestic items U.K.

Textual Amendments

F6 S. 311A and cross-heading inserted (with effect in accordance with s. 73(8)(9) of the amending Act) by Finance Act 2016 (c. 24), s. 73(1)

311A Replacement domestic items relief U.K.

(1) This section applies if conditions A to D are met.

(2) Condition A is that a person (“P”) carries on a property business in relation to land which consists of or includes a dwelling-house.

(3) Condition B is that—

(a) a domestic item has been provided for use in the dwelling-house (“the old item”),

(b) P incurs expenditure on a domestic item for use in the dwelling-house (“the new item”),

(c) the new item is provided solely for the use of the lessee,

(d) the new item replaces the old item, and

(e) following that replacement, the old item is no longer available for use in the dwelling-house.

(4) Condition C is that a deduction for the expenditure is not prohibited by the wholly and exclusively rule but would otherwise be prohibited by the capital expenditure rule (see subsection (15)).

(5) Condition D is that no allowance under CAA 2001 may be claimed in respect of the expenditure.

(6) In calculating the profits of the business, a deduction for the expenditure is allowed. But this is subject to subsections (7) and (8).

(7) No deduction is allowed for 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.

(8) No deduction is allowed for expenditure in a tax year if—

(a) the person has rent-a-room receipts in respect of the dwelling-house for the tax year, and

(b) section 793 or 797 (rent-a-room relief) applies in relation to those receipts.

(9) The basic amount of the deduction is as follows—

(a) where the new item is the same or substantially the same as the old item, the deduction is equal to the expenditure incurred by P on the new item;

(b) where the new item is not the same or substantially the same as the old item, the deduction is equal to so much of the expenditure incurred by P on the new item as does not exceed the expenditure which P would have incurred on an item which is the same or substantially the same as the old item.

Subsections (10) to (13) make further provision about the calculation of the deduction in certain cases.

(10) If P incurs incidental expenditure of a capital nature in connection with the disposal of the old item or the purchase of the new item, the deduction is increased by the amount of the incidental expenditure.

(11) If the old item is disposed of in part-exchange for the new item—

(a) the expenditure incurred by P on the new item is treated as including an amount equal to the value of the old item, and

(b) the deduction is reduced by that amount.

(12) If the old item is disposed of other than in part-exchange for the new item, the deduction is reduced by the amount or value of any consideration in money or money's worth which P or a person connected with P receives, or is entitled to receive, in respect of the disposal.

(13) For the purposes of subsection (12), where the old item is disposed of together with other consideration, the consideration in respect of the disposal mentioned in that subsection is taken not to include the amount of, or an amount equal to the value of, that other consideration.

(14) In this section, “domestic item” means an item for domestic use (such as furniture, furnishings, household appliances and kitchenware), and does not include anything that is a fixture.

• “Fixture”—

  (a)

  means any plant or machinery that is so installed or otherwise fixed in or to a dwelling-house as to become, in law, part of that dwelling-house, and

  (b)

  includes any boiler or water-filled radiator installed in a dwelling-house as part of a space or water heating system.

• “Plant or machinery” here has the same meaning as in Part 2 of CAA 2001.

(15) In this section—

• [F7 “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);]

• “lessee” means the person who is entitled to the use of the dwelling-house under a lease or other arrangement under which a sum is payable in respect of the use of the dwelling-house;

• “the wholly and exclusively rule” means F8 ... section 34 (expenses not wholly and exclusively for trade and unconnected losses), as applied by section 272 [F9 or 272ZA].]

Textual Amendments

F7 Words in s. 311A(15) substituted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 24(a)

F8 Words in s. 311A(15) omitted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 24(b)(i)

F9 Words in s. 311A(15) inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 24(b)(ii)

Deductions for expenditure on energy-saving items U.K.

312 Deduction for expenditure on energy-saving items U.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 [F10 an 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 [F11 2015] ,

(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.

Textual Amendments

F10 Words in s. 312(1)(b) substituted (19.7.2007 with effect as stated in s. 18(6) of the amending Act) by Finance Act 2007 (c. 11), s. 18(2)

F11 Word in s. 312(1)(c) substituted (19.7.2007) by Finance Act 2007 (c. 11), s. 18(3)

313 Restrictions on relief U.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.

[F12 (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.]

Textual Amendments

F12 S. 313(6) inserted (19.7.2007 with effect as stated in s. 18(6) of the amending Act) by Finance Act 2007 (c. 11), s. 18(4)

314 Regulations U.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.

[F13 (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)).]

Textual Amendments

F13 S. 314(3) inserted (retrospectively with effect as stated in s. 18(7)(8) of the amending Act) by Finance Act 2007 (c. 11), s. 18(5)

Deductions for expenditure on sea walls U.K.

315 Deduction for expenditure on sea walls U.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).

[F14 (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.]

Textual Amendments

F14 S. 315(7) inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 25

316 Transfer of interest in premises U.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).

317 Ending of lease of premises U.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).

318 Transfer involving company within the charge to corporation tax U.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 [F15 sections 255 to 257 of CTA 2009] (corresponding corporation tax provision).

Textual Amendments

F15 Words in s. 318(4) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 628 (with Sch. 2 Pts. 1, 2)

Mineral royalties U.K.

F16 319 Relief in respect of mineral royalties U.K.

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

Textual Amendments

F16 S. 319 repealed (with effect in accordance with Sch. 39 para. 43(3) of the amending Act) by Finance Act 2012 (c. 14), Sch. 39 para. 43(1)(b)

Apportionments on sale of land U.K.

320 Nature of item apportioned on sale of estate or interest in land U.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 business U.K.

321 Mutual business U.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.