Office of Public Sector Information
(1) This Part imposes charges to income tax under—
(a) Chapter 3 (the profits of a UK property business or an overseas property business),
(b) Chapter 7 (amounts treated as adjustment income under section 330),
(c) Chapter 8 (rent receivable in connection with a UK section 12(4) concern),
(d) Chapter 9 (rent receivable for UK electric-line wayleaves),
(e) Chapter 10 (post-cessation receipts arising from a UK property business), and
(f) Chapter 11 (overseas property income of a person to whom the remittance basis applies).
(2) Part 6 deals with exemptions from the charges under this Part.
(3) See, in particular, the exemptions under sections 769 (housing grants), 777 (VAT repayment supplements) and 778 (incentives to use electronic communications).
(4) The charges under Chapters 3, 7, 8, 9 and 10 apply to non-UK residents as well as UK residents but this is subject to section 269 (charges on non-UK residents only on UK source income).
(5) This section needs to be read with the relevant priority rules (see sections 2 and 261).
Any receipt or other credit item, so far as it falls within—
(a) Chapter 3 of this Part so far as it relates to an overseas property business or Chapter 8 or 9 of this Part (rent receivable in connection with a UK section 12(4) concern or for UK electric-line wayleaves), and
(b) Chapter 2 of Part 2 (receipts of a trade, profession or vocation),
is dealt with under Part 2.
(1) Any receipt, so far as it falls within—
(a) Chapter 3 so far as it relates to a UK property business, and
(b) Chapter 8 (rent receivable in connection with a UK section 12(4) concern),
is dealt with under Chapter 8.
(2) Any receipt, so far as it falls within—
(a) Chapter 3 so far as it relates to a UK property business, and
(b) Chapter 9 (rent receivable for UK electric-line wayleaves),
is dealt with under Chapter 9.
(3) Any receipt, so far as it falls within Chapter 8 (rent receivable in connection with a UK section 12(4) concern) and Chapter 9 (rent receivable for UK electric-line wayleaves), is dealt with under Chapter 9.
(1) This Chapter explains for the purposes of this Act what is meant by—
(a) a person’s UK property business (see section 264), and
(b) a person’s overseas property business (see section 265).
(2) Both those sections need to be read with—
(a) section 266 (which explains what is meant by generating income from land), and
(b) section 267 (which provides that certain activities do not count as activities for generating income from land).
(3) In the case of the property business of a firm, the basic rules in sections 264 and 265 are explained in section 859(2) and (3).
(4) References in this Act to an overseas property business are to an overseas property business so far as any profits of the business are chargeable to tax under Chapter 3 (as to which see, in particular, section 269).
(5) Accordingly, nothing in Chapter 4 or 5 is to be read as treating an amount as a receipt of an overseas property business if the profits concerned would not be chargeable to tax under Chapter 3.
(6) In this Act “property business” means a UK property business or an overseas property business.
A person’s UK property business consists of—
(a) every business which the person carries on for generating income from land in the United Kingdom, and
(b) every transaction which the person enters into for that purpose otherwise than in the course of such a business.
A person’s overseas property business consists of—
(a) every business which the person carries on for generating income from land outside the United Kingdom, and
(b) every transaction which the person enters into for that purpose otherwise than in the course of such a business.
(1) In this Chapter “generating income from land” means exploiting an estate, interest or right in or over land as a source of rents or other receipts.
(2) “Rents” includes payments by a tenant for work to maintain or repair leased premises which the lease does not require the tenant to carry out.
(3) “Other receipts” includes—
(a) payments in respect of a licence to occupy or otherwise use land,
(b) payments in respect of the exercise of any other right over land, and
(c) rentcharges and other annual payments reserved in respect of, or charged on or issuing out of, land.
(4) For the purposes of this section a right to use a caravan or houseboat at only one location is treated as a right deriving from an estate or interest in land.
For the purposes of this Chapter the following activities are not carried on for generating income from land—
(a) farming or market gardening in the United Kingdom (but see section 9 (UK farming or market gardening treated as trade)),
(b) any other occupation of land (but see section 10 (certain commercial occupation of UK land treated as trade)), and
(c) activities for the purposes of a concern to which section 12 applies (profits of mines, quarries etc.).
Income tax is charged on the profits of a property business.
(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.
(3) But, in the case of an overseas property business carried on by a UK resident to whom the remittance basis applies, the only profits of the business chargeable to tax under this Chapter are those in respect of land in the Republic of Ireland.
(4) For a UK resident to whom the remittance basis applies, see also Chapter 11 (charge to tax on overseas property income other than income arising in Republic of Ireland).
(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).
The person liable for any tax charged under this Chapter is the person receiving or entitled to the profits.
(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 50 | car or motor cycle hire |
| section 51 | patent royalties |
| 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 |
| 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 |
| 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 |
| 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 |
| 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.
(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.
(1) Any relevant permissive rule in this Part—
(a) has priority over any relevant prohibitive rule in this Part, but
(b) is subject to sections 48 (car or motor cycle hire) and 55 (crime-related payments), as applied by section 272.
(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 48 and 55, as applied by section 272) which might otherwise be read as—
(a) prohibiting the deduction, or
(b) restricting the amount of the deduction.
(4) In this section any reference to any provision of this Part includes any provision applied by section 272.
(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.
(1) This Chapter provides for certain amounts (which would otherwise generally be amounts of a capital nature) to be brought into account as receipts in calculating the profits of a property business.
(2) The amounts relate to short-term leases in the case of—
section 277 (lease premiums),
section 278 (amount treated as lease premium where work required),
section 280 (sums payable for surrender of lease), and
section 282 (assignments for profit of lease granted at undervalue).
(3) The amounts relate to any lease in the case of—
section 279 (sums payable instead of rent), and
section 281 (sums payable for variation or waiver of term of lease).
(4) The amounts relate to the sale of any estate or interest in land in the case of—
section 284 (sales with right to reconveyance), and
section 285 (sale and leaseback transactions).
(5) This Chapter also permits certain deductions in calculating the profits of property businesses carried on by tenants under certain leases (see sections 291 and 292).
(6) In this Chapter “short-term lease” means a lease whose effective duration is 50 years or less.
(1) This section applies if a premium is required to be paid—
(a) under a short-term lease, or
(b) otherwise under the terms subject to which a short-term lease is granted.
(2) The person to whom the premium is due is treated as—
(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (if that land is outside the United Kingdom), and
(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.
(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the tax year in which the lease is granted.
(4) The amount of the receipt is given by the formula—
where—
P is the premium, and
Y is the number of complete periods of 12 months (other than the first) comprised in the effective duration of the lease.
(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.
(1) This section applies if the terms subject to which a lease is granted impose on the tenant an obligation to carry out work on the premises.
(2) The lease is treated for the purposes of section 277 (lease premiums) as requiring the payment of a premium to the landlord (in addition to any other premium).
(3) The amount of the premium is the amount by which the value of the landlord’s estate or interest immediately after the commencement of the lease exceeds what its value would have been at that time if the terms of the lease did not impose the obligation on the tenant.
(4) An obligation, or part of an obligation, that requires the carrying out of excepted work is ignored for the purposes of this section.
(5) Work is “excepted work” if the payment for carrying it out would, if the landlord and not the tenant were obliged to carry it out, be deductible as an expense in calculating the profits of the landlord’s property business.
(1) This section applies if—
(a) under the terms subject to which a lease is granted a sum becomes payable by the tenant instead of the whole or a part of the rent for a period, and
(b) the period is 50 years or less.
(2) The person to whom the sum is due is treated as—
(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (if that land is outside the United Kingdom), and
(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.
(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists or of includes that transaction for the tax year in which the sum becomes payable.
(4) The amount of the receipt is given by the formula—
where—
S is the sum payable instead of rent, and
Y is the number of complete periods of 12 months (other than the first) comprised in the period in relation to which the sum is payable.
(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.
(6) In determining for the purposes of this Chapter the duration of the period in relation to which the sum is payable, any part of the period that falls after the expiry of the effective duration of the lease is excluded.
(1) This section applies if, under the terms subject to which a short-term lease is granted, a sum becomes payable by the tenant as consideration for the surrender of the lease.
(2) The person to whom the sum is due is treated as—
(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (if that land is outside the United Kingdom), and
(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.
(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the tax year in which the sum becomes payable.
(4) The amount of the receipt is given by the formula—
where—
S is the sum payable as consideration for the surrender of the lease, and
Y is the number of complete periods of 12 months (other than the first) comprised in the effective duration of the lease.
(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.
(1) This section applies if—
(a) a sum becomes payable by the tenant (otherwise than by way of rent) as consideration for the variation or waiver of a term of a lease,
(b) the sum is due to the landlord or a person who is connected with the landlord, and
(c) the period for which the variation or waiver has effect is 50 years or less.
(2) The person to whom the sum is due is treated as—
(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (if that land is outside the United Kingdom), and
(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.
(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the tax year in which the contract providing for the variation or waiver is entered into.
(4) The amount of the receipt is given by the formula—
where—
S is the sum payable as consideration for the variation or waiver, and
Y is the number of complete periods of 12 months (other than the first) comprised in the period for which the variation or waiver has effect.
(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.
(6) In determining for the purposes of this Chapter the duration of the period for which the variation or waiver has effect, any part of the period that falls after the expiry of the effective duration of the lease is excluded.
(1) This section applies to an assignment of a short-term lease if—
(a) the lease was granted at an undervalue, and
(b) a profit is made on the assignment.
(2) The person who assigns the lease is treated as—
(a) entering into a transaction mentioned in section 264 (if the land to which the lease relates is in the United Kingdom) or section 265 (if that land is outside the United Kingdom), and
(b) receiving the amount calculated under subsections (4) and (5) as a result of that transaction.
(3) That amount is brought into account as a receipt in calculating the profits of the property business which consists of or includes that transaction for the tax year in which the consideration for the assignment becomes payable.
(4) The amount of the receipt is given by the formula—
where—
P is the lesser of—
(a) the profit on the assignment, and
(b) the amount by which the undervalue exceeds the total of the profits (if any) made on previous assignments of the lease, and
Y is the number of complete periods of 12 months (other than the first) comprised in the effective duration of the lease.
(5) But, if the rule in section 288 (the additional calculation rule) applies, the amount given by the formula in subsection (4) is reduced by the amount calculated in accordance with section 288.
(6) Section 283 explains references in this section to the grant of a lease at an undervalue and the making of a profit on an assignment of a lease.
(1) This section operates for the purposes of section 282.
(2) A lease is granted at an undervalue if the terms subject to which it was granted are such that the landlord who granted it could have required the payment of an additional sum by way of premium, or additional premium, for its grant.
(3) The additional sum is the undervalue.
(4) The test in subsection (2) must be applied—
(a) having regard to values prevailing at the time the lease was granted, and
(b) on the assumption that the negotiations for the lease were at arm’s length.
(5) A profit is made on an assignment of a lease if the consideration for the assignment exceeds—
(a) if the lease has not previously been assigned, any premium for which it was granted, or
(b) in any other case, any consideration for which it was last assigned.
(6) The amount of the excess is the profit.
Income Tax (Trading and Other Income) Act 2005