Income and Corporation Taxes Act 1988

Deductions and other allowances U.K.

25 Deductions from rent: general rules. U.K.

F1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 S. 25 ceased to have effect except for specified purposes (with effect in accordance with s. 39(4)(5) of the amending Act) by virtue of Finance Act 1995 (c. 4), s. 39(3), Sch. 6 para. 4(a); and s. 25 repealed (with effect as mentioned in s. 38(2)(3) of the repealing Act) by Finance Act 1998 (c. 36), ss. 38(1), 165, Sch. 5 para. 6, Sch. 27 Pt. 3(4), Note (with Sch. 5 paras. 65, 68, 73)

26 Deductions from rent: land managed as one estate. U.K.

[F2 (1) M1 Where this section applies to an estate for a chargeable period, the owner shall be treated—

(a) in relation to a part of the estate which for any portion of that period is not comprised in a lease under which he is the landlord, as if he were entitled under a lease of that part F3 . . . to rent for that portion, becoming due from day to day, at a rate per annum equal to the relevant annual value, and

(b) in relation to a part of the estate which for any portion of that period is comprised in a lease under which he is the landlord, [F4 as if the rent, so far as it relates to that part and would otherwise be treated as being at a lower rate, were at a rate per annum equal to the relevant annual value.]

(2) In any case where subsection (1) above applies—

(a) F3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) paragraph (a) of that subsection shall not apply to premises occupied by the owner wholly and exclusively for purposes connected with the management of the estate or for the purposes of a trade, profession or vocation.

[F5 (2A) Where subsection (1) above applies, the following rules apply in computing the profits on which the owner is charged under Schedule A—

(a) disbursements and expenses relating to any of that part of the estate which comprises land the rent in respect of which is determined under that subsection (“the relevant part of the estate") shall not be deductible from any receipts which are not so determined except to the extent that—

(i) the amount of the disbursements and expenses exceeds the amount of the rent so determined, and

(ii) the receipts against which the remainder is set are receipts in respect of land comprised in the estate;

(b) any excess for a chargeable period of the disbursements and expenses relating to the relevant part of the estate (including any excess carried forward under this paragraph) over the receipts for that period from which they are deductible in accordance with paragraph (a) above—

(i) shall be disregarded in computing any loss in respect of which relief may be given under section 379A or 392A, but

(ii) may be carried forward to the following chargeable period and treated in relation to the later period as if it were a disbursement or expense relating to the relevant part of the estate;

(c) disbursements and expenses relating to any land not comprised in the relevant part of the estate shall be deductible from the deemed receipts in respect of the land which is so comprised to the extent only that the deemed receipts exceed the aggregate of—

(i) the actual disbursements and expenses for that period relating to the relevant part of the estate, and

(ii) any amounts carried forward to that period under paragraph (b) above;

and

(d) any excess of the disbursements and expenses for that period relating to land not comprised in the relevant part of the estate over the amounts from which they are deductible shall be treated for the purposes of section 379A or 392A as a loss for that period in the Schedule A business in question.]

(3) M2 This section shall apply to an estate if, at the end of the year 1962-63, the land comprised in the estate was managed as one estate and the owner for the time being of the estate by notice to the inspector so elects; but such an election—

(a) must be made within 12 months after the end of the first chargeable period for which the person making it became entitled to make it or such further time as the Board may allow;

(b) except in the case of the first election that can be made under this subsection or the first election made under section 73(2) of the 1970 Act, shall not have effect unless an election under this section has had effect as respects the immediately preceding ownership;

(c) shall apply in relation to the estate throughout the ownership of the person making it.

(4) M3 Where in any chargeable period the estate comprises premises not included in it at the end of the year 1962-63, subsection (1) above (but not subsection (2)) shall apply in relation to the chargeable period as if the premises were not included in the estate in that period.

(5) M4 Subsection (4) above shall not have effect in relation to any premises if—

(a) at the end of the year 1962-63 the owner of the remainder of the estate as then subsisting was entitled under trusts arising under a settlement or on an intestacy, or in Scotland, under a disposition by way of liferent and fee, to an interest such that, on the occurrence of some future event or events, he might become the owner of the premises in question, and

(b) before the end of that year, the premises and the remainder of the estate, as then subsisting, were together managed as one estate.

(6) M5 In this section—

• “estate” means land in one ownership managed as one estate (but without prejudice to section 27); and

• “relevant annual value”, in relation to any part of an estate, means the annual value of that part ascertained in accordance with section 837.]

Textual Amendments

F2 S. 26 repealed (with effect as mentioned in s. 39 of the repealing Act) by Finance Act 1998 (c. 36), s. 165, Sch. 27 Pt. 3(5), Note

F3 Words in s. 26(1)(a), and the whole of s. 26(2)(a), repealed (with effect as mentioned in s. 38(2)(3) of the repealing Act) by Finance Act 1998 (c. 36), ss. 38(1), 165, Sch. 5 para. 7(2)(a)(3), Sch. 27 Pt. 3(4), Note (with Sch. 5 para. 73)

F4 Words in S. 26(1) substituted (with effect as mentioned in s. 38(2)(3) of the amending Act) by Finance Act 1998 (c. 36), s. 38(1), Sch. 5 para. 7(2)(b) (with Sch. 5 para. 73)

F5 S. 26(2A) inserted (with effect as mentioned in s. 38(2)(3) of the amending Act) by Finance Act 1998 (c. 36), s. 38(1), Sch. 5 para. 7(4) (with Sch. 5 para. 73)

Modifications etc. (not altering text)

C1 S. 26 modified (with effect in accordance with s. 39(4)(5) of the modifying Act) by Finance Act 1995 (c. 4), s. 39(3), Sch. 6 para. 5

Marginal Citations

M1 SOURCE-1970 s. 73(1)

M2 SOURCE-1970 s. 73(2)

M3 SOURCE-1970 s. 73(3)

M4 SOURCE-1970 s. 73(3)

M5 SOURCE-1970 s. 73(4)

27 Deductions from rent: maintenance funds for historic buildings. U.K.

[F6 (1) M6 Where a building or land which is qualifying property for the purposes of paragraph 3(1) of Schedule 4 to the M7 Inheritance Tax Act 1984 (maintenance funds for historic buildings) forms part of an estate in relation to which an election has effect under section 26—

(a) the election shall not cease to have effect by reason only of another part of the estate becoming comprised in, and managed by the trustees of, a settlement in relation to which the Treasury give a direction under paragraph 1 of that Schedule, and

(b) while such a direction has effect that other part shall be treated as continuing to form part of the estate to which the election relates.

(2) In any case where—

(a) a person becomes the owner of any such building or land as is mentioned in subsection (1) above, and

(b) that building or land, in the immediately preceding ownership, formed part of an estate in relation to which an election under section 26 had effect,

any other part of that estate which continues to be or becomes comprised in a settlement of the kind mentioned in subsection (1) above shall, while such a direction as is mentioned in that subsection has effect, be treated as part of the estate in relation to which an election under section 26 may be made by him.

[F7 (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.]

(4) Where by virtue of this section an election has effect in relation to an estate part of which is comprised in a settlement, the election shall not cease to have effect in relation to any of that part by reason of its ceasing to be comprised in that settlement if either—

(a) it becomes comprised in another settlement in circumstances such that by virtue of paragraph 9(1) of Schedule 4 to the M8 Inheritance Tax Act 1984 there is (or would but for paragraph 9(4) be) no charge to inheritance tax in respect of the property so ceasing; or

(b) both immediately before and immediately after its so ceasing it is property in respect of which a direction has effect under paragraph 1 of that Schedule.

(5) The inclusion by virtue of this section in an estate of property comprised in a settlement shall not be construed as requiring it to be treated as the property of the person who owns the remainder of the estate or as affecting any question as to the person entitled to the income arising from that property.]

Textual Amendments

F6 S. 27 repealed (with effect as mentioned in s. 39 of the repealing Act) by Finance Act 1998 (c. 36), s. 165, Sch. 27 Pt. 3(5), Note

F7 S. 27(3) substituted (with effect as mentioned in s. 38(2)(3) of the amending Act) by Finance Act 1998 (c. 36), ss. 38(1), Sch. 5 para. 8 (with Sch. 5 para. 73)

Marginal Citations

M6 SOURCE-1980 s. 53; 1982 Sch. 10 para. 3; ITA Sch. 8 para 18

M7 1984 c.51.

M8 1984 c. 51.

28 Deductions from receipts other than rent. U.K.

F8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F8 S. 28 ceased to have effect except for specified purposes (with effect in accordance with s. 39(4)(5) of the amending Act) by virtue of Finance Act 1995 (c. 4), s. 39(3), Sch. 6 para. 4(a); and s. 28 repealed (with effect as mentioned in s. 38(2)(3) of the repealing Act) by Finance Act 1998 (c. 36), ss. 38(1), 165, Sch. 5 para. 9, Sch. 27 Pt. 3(4), Note (with Sch. 5 paras. 65, 73)

29 Sporting rights. U.K.

F9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F9 S. 29 ceased to have effect except for specified purposes (with effect in accordance with s. 39(4)(5) of the amending Act) by virtue of Finance Act 1995 (c. 4), s. 39(3), Sch. 6 para. 4(b); and s. 29 repealed (with effect as mentioned in s. 38(2)(3) of the repealing Act) by Finance Act 1998 (c. 36), ss. 38(1), 165, Sch. 5 para. 10, Sch. 27 Pt. 3(4), Note (with Sch. 5 paras. 65, 73)

30 Expenditure on making sea walls. U.K.

(1) M9 Where in any year of assessment the owner or tenant of any premises incurs any expenditure in the making of any 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, he shall be treated [F10 for the purpose of computing the profits of any Schedule A business carried on in relation to those premises] as making in that year of assessment and in each of the succeeding 20 years of assessment a payment in relation to the premises preserved or protected by the embankment of an amount equal to a twenty-first part of the expenditure and incurred in respect of dilapidation attributable to the year.

(2) Where the whole of that person’s interest in the premises or any part thereof is transferred (whether by operation of law or otherwise) to some other person—

(a) the amount of the payment which he would be so treated as making for the year of assessment in which the transfer takes place shall be treated as being made partly by the transferor and partly by the transferee, as may be just; and

(b) the transferee shall, to the exclusion of the transferor, be treated in any subsequent year—

(i) where the interest transferred is in the whole of the premises, as having made the whole of the payment for that year, and

(ii) where the interest transferred is in part only of the premises, as having made so much of the payment as is properly referable to that part of the premises.

(3) For the purposes of subsection (2) above, where an interest in any premises is a lease and that lease comes to an end, that interest shall be deemed to have been transferred—

(a) if an incoming lessee makes any payment to the outgoing lessee in respect of the embankment in question, to the incoming lessee, and

(b) in any other case, to the owner of the interest in immediate reversion on the lease and, in relation to Scotland, the expression “the owner of the interest in immediate reversion on the lease” shall be construed as a reference to the landlord.

(4) In relation to a company, section 9(1) shall not have effect so as to require references in this section to a year of assessment to be read as references to an accounting period, but any deduction authorised by this section shall be apportioned between the accounting periods (if more than one) comprising the year of assessment, other than any such period ended before the expenditure is incurred, or transfer takes place, by virtue of which the company is entitled to the deduction.

(5) This section shall not apply in relation to any expenditure in respect of which a capital allowance has been made.

Textual Amendments

F10 Words in s. 30(1) substituted (with effect in accordance with s. 38(2)(3) of the amending Act) by Finance Act 1998 (c. 36), s. 38(1), Sch. 5 para. 11 (with Sch. 5 para. 73)

Modifications etc. (not altering text)

C2 S. 30(1) modified (with effect in accordance with s. 39(4)(5) of the modifying Act) by Finance Act 1995 (c. 4), s. 39(3), Sch. 6 para. 7

C3 See 1979(C) s.34(4)(b)—restriction, by reference to capital allowances, of capital losses for purpose of capital gains.

Marginal Citations

M9 SOURCE-1970 s. 76

31 Provisions supplementary to sections 25 to 30. U.K.

F11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F11 S. 31 ceased to have effect except for specified purposes (with effect in accordance with s. 39(4)(5) of the amending Act) by virtue of Finance Act 1995 (c. 4), s. 39(3), Sch. 6 para. 4(c); and s. 31 repealed (with effect as mentioned in s. 38(2)(3) of the repealing Act) by Finance Act 1998 (c. 36), ss. 38(1), 165, Sch. 5 para. 12, Sch. 27 Pt. 3(4), Note (with Sch. 5 paras. 65, 68, 73)

Valid from 19/07/2007

[F12 31ZA Deduction for expenditure on energy-saving items U.K.

(1) This section applies if—

(a) a company carries on a Schedule A business in relation to land which consists of or includes a dwelling-house,

(b) the company incurs expenditure in acquiring and installing 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 1st April 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 the Capital Allowances Act may be claimed in respect of the expenditure.

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

(3) But any deduction is subject to—

(a) section 31ZB (restrictions on the relief), and

(b) any provision made by regulations under section 31ZC.

(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 an item of an energy-saving nature of such description as is for the time being specified in regulations made by the Treasury.

(6) The Treasury may by regulations provide for an item to be 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 74(1)(f) or (g) (capital expenditure), as applied by section 21A, and

• “the wholly and exclusively rule” means the rule in section 74(1)(a) or (e) (expenses not wholly and exclusively for trade and unconnected losses), as applied by section 21A.]

Textual Amendments

F12 Ss. 31ZA-31ZC inserted (with effect in accordance with s. 17(2) of the amending Act) by Finance Act 2007 (c. 11), s. 17(1); S.I. 2008/1521, art. 2

Valid from 19/07/2007

[F12 31ZB Restrictions on relief U.K.

(1) This section restricts deductions that would otherwise be allowable under section 31ZA.

(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 company 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 an accounting period if—

(a) the Schedule A business consists of or includes the commercial letting of furnished holiday accommodation for the purposes of section 503, and

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

(4) No deduction is allowed in respect of expenditure treated by section 401 (as applied by section 21B) as incurred on the date on which the company starts to carry on the Schedule A business unless the expenditure was incurred not more than 6 months before that date.

(5) 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 Ss. 31ZA-31ZC inserted (with effect in accordance with s. 17(2) of the amending Act) by Finance Act 2007 (c. 11), s. 17(1); S.I. 2008/1521, art. 2

Valid from 19/07/2007

[F12 31ZC Regulations U.K.

(1) In relation to any deduction under section 31ZA, 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 Schedule A 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 persons within the charge to income tax.

(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

F12 Ss. 31ZA-31ZC inserted (with effect in accordance with s. 17(2) of the amending Act) by Finance Act 2007 (c. 11), s. 17(1); S.I. 2008/1521, art. 2

Valid from 22/07/2004

[F13 31A Deductions for expenditure by landlords on energy-saving items U.K.

(1) This section applies to a Schedule A business if the land mentioned in paragraph 1(1) of Schedule A consists of or includes a dwelling-house.

(2) In computing for the purposes of income tax the profits of a Schedule A business to which this section applies, a deduction shall be allowed in respect of any expenditure to which subsection (3) applies.

That is subject to any provision of regulations under subsection (13).

(3) This subsection applies to expenditure as respects which the numbered conditions set out in the following provisions of this section (“the qualifying conditions”) are satisfied.

(4) Condition 1 is that the expenditure is incurred in the provision of a qualifying energy-saving item in the dwelling-house.

(5) Condition 2 is that the expenditure is incurred on or after 6th April 2004 but before 6th April 2009.

(6) Condition 3 is that the expenditure is incurred wholly and exclusively for the purposes of the Schedule A business.

(7) Condition 4 is that the expenditure is capital expenditure.

(8) Condition 5 is that, apart from this section, the expenditure is not deductible in computing the profits of the Schedule A business.

(9) Condition 6 is that no allowance under the Capital Allowances Act may be claimed in respect of the expenditure.

(10) Condition 7 is that the expenditure is not incurred in respect of the provision of an item in a dwelling-house which, at the time when the item is installed,—

(a) is in the course of construction, or

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

(11) Condition 8 is that for the purposes of section 503 (letting of furnished holiday accommodation to be treated as a trade for certain purposes) either—

(a) the Schedule A business does not consist to any extent in the commercial letting of furnished holiday accommodation, or

(b) if it does so consist to any extent, the dwelling-house does not constitute any or all of the furnished holiday accommodation in question.

(12) Condition 9 is that the income of the person claiming the deduction is not computed in accordance with paragraph 9 or 11 of Schedule 10 to the Finance (No. 2) Act 1992 (furnished accommodation) in respect of any qualifying residence which consists of or includes the dwelling-house.

(13) The Treasury may by regulations make provision for any of the following purposes—

(a) restricting or reducing the amount of expenditure in respect of which deductions may be claimed under this section;

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

(c) determining which of two or more persons is (and which is not) entitled to a deduction under this section in cases where different persons have different interests in land consisting of or including the whole or part of a building containing one or more dwelling-houses;

(d) making apportionments (including apportioning amounts to companies which are not entitled to a deduction under this section) in cases where—

(i) a Schedule A business is carried on by two or more persons in partnership, or

(ii) an interest in land is beneficially owned by two or more persons jointly or in common.

(14) Section 31B supplements this section.]

Textual Amendments

F13 Ss. 31A, 31B inserted (with effect in accordance with s. 143(2) of the amending Act) by Finance Act 2004 (c. 12), s. 143(1)

Valid from 22/07/2004

[F13 31B Provisions supplementary to section 31A U.K.

(1) This section has effect for the purpose of supplementing section 31A and shall be construed as one with that section.

(2) Section 31A does not have effect for the purposes of corporation tax.

(3) No deduction may be made under section 31A unless a claim is made.

(4) Where, on a just and reasonable apportionment of any expenditure, the qualifying conditions—

(a) would be satisfied as respects some part or parts of the expenditure, but

(b) would not be satisfied as respects the remainder of the expenditure,

a deduction under section 31A shall be allowed in respect of the part or parts mentioned in paragraph (a) but not in respect of the remainder.

Any such deduction is subject to, and must be in accordance with, the other provisions of this section and regulations under section 31A(13).

(5) Expenditure incurred by a person—

(a) for the purposes of a Schedule A business, but

(b) before the time when he begins to carry on that business,

is not deductible under section 31A by virtue of section 401 (relief for pre-trading expenditure) unless the expenditure is incurred not more than 6 months before that time (and on or after 6th April 2004).

The reference to section 401 is a reference to that section as it applies for the purposes of Schedule A in relation to a Schedule A business by virtue of section 21B.

(6) “Qualifying energy-saving items”are items of any of the following descriptions—

(a) cavity wall insulation;

(b) loft insulation.

(7) The Treasury may by regulations amend subsection (6)—

(a) by adding further descriptions of items; or

(b) by removing or varying descriptions of items.

(8) The Treasury may by regulations provide that an item is to be regarded as an item of any particular description in subsection (6) only if it satisfies such conditions as may be specified in, or determined in accordance with, the regulations.

(9) The conditions that may be imposed by regulations under subsection (8) include conditions imposed by reference to information or documents issued by any body, person or organisation.

(10) The provision that may be made by regulations under this section or section 31A which are made on or before 31st December 2004 includes provision—

(a) having effect before the date on which the regulations are made, or

(b) having effect in relation to expenditure incurred before that date.

(11) Any reference to the provision of a qualifying energy-saving item is a reference to the acquisition of such an item and its installation in the dwelling-house.]

Textual Amendments

F13 Ss. 31A, 31B inserted (with effect in accordance with s. 143(2) of the amending Act) by Finance Act 2004 (c. 12), s. 143(1)

32 Capital allowances for machinery and plant used in estate management. U.K.

F14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F14 S. 32 repealed (with effect as mentioned in Sch. 15 para. 9(1) of the repealing Act) by Finance Act 1997 (c. 16), ss. 85, 113, Sch. 15 para. 1, Sch. 18 Pt. 06(11), Note

33 Agricultural land: allowance for excess expenditure on maintenance. U.K.

F15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F15 S. 33 ceased to have effect except for specified purposes (with effect in accordance with s. 39(4)(5) of the amending Act) by virtue of Finance Act 1995 (c. 4), s. 39(3), Sch. 6 para. 4(d); and s. 33 repealed (with effect as mentioned in s. 38(2)(3) of the repealing Act) by Finance Act 1998 (c. 36), ss. 38(1), 165, Sch. 5 para. 13, Sch. 27 Pt. 3(4), Note (with Sch. 5 paras. 65, 73)