Income Tax (Trading and Other Income) Act 2005

Calculation of profits U.K.

272 Profits of a property business: application of trading income rules U.K.

(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 [F1 50B]	car F2 ... hire
F3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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
[F4 section 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
[F5 sections 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
[F6 section 94A	costs of setting up SAYE option scheme or CSOP scheme]
[F7 section 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
[F8 In 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.

Textual Amendments

F1 Word in s. 272(2) Table substituted (with effect in accordance with Sch. 11 paras. 65-67 of the amending Act) by Finance Act 2009 (c. 10), Sch. 11 para. 41(a)

F2 Words in s. 272(2) Table omitted (with effect in accordance with Sch. 11 paras. 65-67 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 41(b)

F3 S. 272(2) Table: entry repealed (6.4.2007 with effect as stated in s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), ss, 1027, 1031, 1034, Sch. 1 para. 507, {Sch. 3 Pt. 1} (with transitional provisions and savings in Sch. 2)

F4 Words in s. 272(2) Table inserted (with effect in accordance with s. 73(6) of the amending Act) by Finance Act 2008 (c. 9), s. 73(5)

F5 Words in s. 272(2) Table inserted (with effect in accordance with Sch. 5 para. 9 of the amending Act) by Finance Act 2015 (c. 11), Sch. 5 para. 2

F6 Words in s. 272(2) Table inserted (1.4.2010) (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 7 para. 29 (with Sch. 9 paras. 1-9, 22)

F7 Words in s. 272(2) Table inserted (6.4.2014) by Finance Act 2014 (c. 26), Sch. 17 paras. 3(3), 6

F8 S. 272(2) Table: entry relating to Ch. 10A (long funding leases) inserted (with effect as mentioned in Sch. 8 para. 15 of the amending Act) by Finance Act 2006 (c. 25), s. 81, Sch. 8 para. 14(2)

[F9 272A Restricting deductions for finance costs related to residential property U.K.

(1) 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.

(2) 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.

(3) 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.

(4) 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.

Textual Amendments

F9 Ss. 272A, 272B inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 24(2)

272B Meaning of “costs of a dwelling-related loan” U.K.

(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.]

Textual Amendments

F9 Ss. 272A, 272B inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 24(2)

273 Amounts not brought into account as part of a property business U.K.

(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.

274 Relationship between rules prohibiting and allowing deductions U.K.

(1) Any relevant permissive rule in this Part—

(a) has priority over any relevant prohibitive rule in this Part, but

(b) is subject to [F10 section 36 (unpaid remuneration), section 38 (employee benefit contributions), section 48 (car F11 ... hire) and section] 55 (crime-related payments), as applied by section 272[F12 , and to section 272A (finance costs)].

[F13 (1A) 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 [F14 36, 38,] 48 and 55, as applied by section 272[F15 , and apart also from section 272A]) which might otherwise be read as—

(a) prohibiting the deduction, or

(b) restricting the amount of the deduction.

[F16 (3A) 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.

Textual Amendments

F10 Words in s. 274(1)(b) substituted (with effect as stated in s. 67(7) of the amending Act) by Finance Act 2007 (c. 11), s. 67(5)

F11 Words in s. 274(1)(b) omitted (with effect in accordance with Sch. 11 paras. 65-67 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 11 para. 42

F12 Words in s. 274(1)(b) inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 24(3)

F13 S. 274(1A) inserted (with effect in accordance with s. 78(5)-(7) of the amending Act) by Finance Act 2013 (c. 29), s. 78(2)(a)

F14 Words in s. 274(3) inserted (with effect as stated in s. 67(7) of the amending Act) by Finance Act 2007 (c. 11), s. 67(6)

F15 Words in s. 274(3) inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 24(4)

F16 S. 274(3A) inserted (with effect in accordance with s. 78(5)-(7) of the amending Act) by Finance Act 2013 (c. 29), s. 78(2)(b)