Income Tax (Trading and Other Income) Act 2005 (c. 5)

Part 3 U.K. Property income

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

[F1 Deduction for replacement of domestic items U.K.

Textual Amendments

F1 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—

• [F2 “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 F3 ... section 34 (expenses not wholly and exclusively for trade and unconnected losses), as applied by section 272 [F4 or 272ZA].]

Textual Amendments

F2 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)

F3 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)

F4 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)