Part 3Property income
Chapter 3Profits of property businesses: basic rules
Charge to tax on profits of a property business
268Charge to tax on profits of a property business
Income tax is charged on the profits of a property business.
269Territorial scope of charge to tax
1
Profits of a UK property business are chargeable to tax under this Chapter whether the business is carried on by a UK resident or a non-UK resident.
2
Profits of an overseas property business are chargeable to tax under this Chapter only if the business is carried on by a UK resident.
F53
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F64
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270Income charged
1
Tax is charged under this Chapter on the full amount of the profits arising in the tax year.
2
Subsection (1) is subject to Part 8 (foreign income: special rules).
F123
If, as respects an individual carrying on an overseas property business, the tax year is a split year—
a
tax is charged under this Chapter on so much of the profits referred to in subsection (1) as arise in the UK part of the tax year, and
b
the portion of the profits arising in the overseas part of the tax year is, accordingly, not chargeable to tax under this Chapter.
4
In determining how much of the profits arise in the UK part of the tax year—
a
determine first how much of the non-CAA profits arise in the UK part by apportioning the non-CAA profits between the UK part and the overseas part on a just and reasonable basis, and
b
then adjust the portion of the non-CAA profits arising in the UK part by deducting any CAA allowances for the year and adding any CAA charges for the year.
5
In subsection (4)—
“CAA allowances” means allowances treated under section 250 or 250A of CAA 2001 (capital allowances for overseas property businesses) as an expense of the business;
“CAA charges” means charges treated under either of those sections as a receipt of the business;
“non-CAA profits” means profits before account is taken of any CAA allowances or CAA charges.
271Person liable
The person liable for any tax charged under this Chapter is the person receiving or entitled to the profits.
Calculation of profits
272Profits of a property business: application of trading income rules
1
The profits of a property business are calculated in the same way as the profits of a trade.
2
But the provisions of Part 2 (trading income) which apply as a result of subsection (1) are limited to the following—
In Chapter 3 (basic rules)— | |
section 25 | generally accepted accounting practice |
section 26 | losses calculated on same basis as profits |
section 27 | receipts and expenses |
section 28 | items treated under CAA 2001 as receipts and expenses |
section 29 | interest |
In Chapter 4 (rules restricting deductions)— | |
section 33 | capital expenditure |
section 34 | expenses not wholly and exclusively for trade and unconnected losses |
section 35 | bad and doubtful debts |
sections 36 and 37 | unpaid remuneration |
sections 38 to 44 | employee benefit contributions |
sections 45 to 47 | business entertainment and gifts |
sections 48 to F850B | car F9... hire |
F1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | F1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . |
section 52 | exclusion of double relief for interest |
section 53 | social security contributions |
section 54 | penalties, interest and VAT surcharges |
section 55 | crime-related payments |
F7section 55A | expenditure on integral features |
In Chapter 5 (rules allowing deductions)— | |
section 57 | pre-trading expenses |
sections 58 and 59 | incidental costs of obtaining finance |
section 68 | replacement and alteration of trade tools |
section 69 | payments for restrictive undertakings |
sections 70 and 71 | seconded employees |
section 72 | payroll deduction schemes: contributions to agents' expenses |
sections 73 to 75 | counselling and retraining expenses |
sections 76 to 80 | redundancy payments etc. |
section 81 | personal security expenses |
sections 82 to 86 | contributions to local enterprise organisations or urban regeneration companies |
F16sections 86A and 86B | contributions to flood and coastal erosion risk management projects |
sections 87 and 88 | scientific research |
sections 89 and 90 | expenses connected with patents, designs and trade marks |
section 91 | payments to Export Credits Guarantee Department |
F11section 94A | costs of setting up SAYE option scheme or CSOP scheme |
F15section 94AA | deductions in relation to salaried members of limited liability partnerships |
In Chapter 6 (receipts)— | |
section 96 | capital receipts |
section 97 | debts incurred and later released |
section 104 | distribution of assets of mutual concerns |
section 105 | industrial development grants |
section 106 | sums recovered under insurance policies etc. |
In Chapter 7 (gifts to charities etc.)— | |
section 109 | receipt by donor or connected person of benefit attributable to certain gifts |
F2In Chapter 10A (long funding leases)— | |
Sections 148A to 148J | Leases of plant or machinery: special rules for long funding leases |
In Chapter 11 (other specific trades)— | |
section 155 | levies and repayments under FISMA 2000 |
In Chapter 13 (deductions from profits)— | |
sections 188 to 191 | unremittable amounts |
3
In those provisions the expression “this Part” is to be read as a reference to those provisions as applied by subsection (2) and to the other provisions of Part 3.
272AF17Restricting deductions for finance costs related to residential property
C2C11
Where a deduction is allowed for costs of a dwelling-related loan in calculating the profits of a property business for the tax year 2017-18, the amount allowed to be deducted in respect of those costs in calculating those profits for income tax purposes is 75% of what would be allowed apart from this section.
C2C12
Where a deduction is allowed for costs of a dwelling-related loan in calculating the profits of a property business for the tax year 2018-19, the amount allowed to be deducted in respect of those costs in calculating those profits for income tax purposes is 50% of what would be allowed apart from this section.
C2C13
Where a deduction is allowed for costs of a dwelling-related loan in calculating the profits of a property business for the tax year 2019-20, the amount allowed to be deducted in respect of those costs in calculating those profits for income tax purposes is 25% of what would be allowed apart from this section.
C2C14
In calculating the profits of a property business for income tax purposes for the tax year 2020-21 or any subsequent tax year, no deduction is allowed for costs of a dwelling-related loan.
5
Subsections (1) to (4) do not apply in relation to calculating the profits of a property business for the purposes of charging a company to income tax on so much of those profits as accrue to it otherwise than in a fiduciary or representative capacity.
6
For the meaning of “costs of a dwelling-related loan” see section 272B.
272BMeaning of “costs of a dwelling-related loan”
1
Subsections (2) to (5) apply for the purposes of section 272A.
2
“Dwelling-related loan”, in relation to a property business, means so much of an amount borrowed for purposes of the business as is referable (on a just and reasonable apportionment) to so much of the business as is carried on for the purpose of generating income from—
a
land consisting of a dwelling-house or part of a dwelling-house, or
b
an estate, interest or right in or over land within paragraph (a),
but see subsections (3) and (4).
3
Anything that in the course of a property business is done for creating (by construction or adaptation) a dwelling-house, or part of a dwelling-house, from which income is to be generated is, for the purposes of subsection (2), to be treated as done for the purpose mentioned in that subsection.
4
An amount borrowed for purposes of a property business is not a dwelling-related loan so far as the amount is referable (on a just and reasonable apportionment) to so much of the property business as consists of the commercial letting of furnished holiday accommodation.
5
“Costs”, in relation to a dwelling-related 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.
6
Section 58(2) to (4) (meaning of “incidental costs of obtaining finance”) apply for the purposes of subsection (5)(c).
7
A reference in this section to a “dwelling-house” includes any land occupied or enjoyed with it as its garden or grounds.
273Amounts not brought into account as part of a property business
1
The rules for calculating the profits of a property business need to be read with the following provisions of Part 2 (trading income)—
a
section 19 (tied premises),
b
section 20 (caravan sites where trade carried on),
c
section 21 (surplus business accommodation), and
d
section 22(3) (payments for wayleaves).
2
Those provisions secure that amounts which would otherwise be brought into account in calculating the profits of the business are, or may be, brought into account instead in calculating the profits of a trade.
274Relationship between rules prohibiting and allowing deductions
1
Any relevant permissive rule in this Part—
a
has priority over any relevant prohibitive rule in this Part, but
F131A
But, if the relevant permissive rule would allow a deduction in calculating the profits of a property business in respect of an amount which arises directly or indirectly in consequence of, or otherwise in connection with, relevant tax avoidance arrangements, that rule—
a
does not have priority under subsection (1)(a), and
b
is subject to any relevant prohibitive rule in this Part (and to the provisions mentioned in subsection (1)(b)).
2
In this section “any relevant permissive rule in this Part” means any provision of this Part (apart from sections 291 to 294) which allows a deduction in calculating the profits of a property business.
3
In this section “any relevant prohibitive rule in this Part”, in relation to any deduction, means any provision of this Part (apart from sections F436, 38, 48 and 55, as applied by section 272 F20 , and apart also from section 272A ) which might otherwise be read as—
a
prohibiting the deduction, or
b
restricting the amount of the deduction.
F143A
In this section “relevant tax avoidance arrangements” means arrangements—
a
to which the person carrying on the property business is a party, and
b
the main purpose, or one of the main purposes, of which is the obtaining of a tax advantage (within the meaning of section 1139 of CTA 2010).
“Arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).
4
In this section any reference to any provision of this Part includes any provision applied by section 272.
Apportionment of profits
275Apportionment etc. of profits to tax year
1
This section applies if a period of account of a property business does not coincide with a tax year.
2
Any of the following steps may be taken if they are necessary in order to arrive at the profits or losses of the tax year—
a
apportioning the profits or losses of a period of account to the parts of that period falling in different tax years, and
b
adding the profits or losses of a period of account (or part of a period) to profits or losses of other periods of account (or parts).
3
The steps must be taken by reference to the number of days in the periods concerned.
4
But the person carrying on the business may use a different way of measuring the length of the periods concerned if—
a
it is reasonable to do so, and
b
the way of measuring the length of periods is used consistently for the purposes of the business.
Ss. 274A, 274B and cross-heading inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 24(5)