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

(The document as of February, 2008)

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(2) A letting of accommodation is commercial if the accommodation is let--

(a) on a commercial basis, and

(b) with a view to the realisation of profits.

(3) A letting is of furnished holiday accommodation if--

(a) the person entitled to the use of the accommodation is also entitled, in connection with that use, to the use of furniture, and

(b) the accommodation is qualifying holiday accommodation (see sections 325 and 326).

(4) This section applies for the purposes of this Chapter.

324 Meaning of "relevant period" in sections 325 and 326

(1) For the purposes of sections 325 and 326 "the relevant period" for accommodation let by a person in a tax year is determined as follows.

(2) If the accommodation was not let by the person as furnished accommodation in the previous tax year, "the relevant period" is 12 months beginning with the first day in the tax year on which it is let by the person as furnished accommodation.

(3) If the accommodation--

(a) was let by the person as furnished accommodation in the previous tax year, but

(b) is not let by the person as furnished accommodation in the following tax year,

"the relevant period" is 12 months ending with the last day in the tax year on which it is let by the person as furnished accommodation.

(4) Otherwise "the relevant period" is the tax year.

325 Meaning of "qualifying holiday accommodation"

(1) Accommodation which is let by a person during a tax year is "qualifying holiday accommodation" for the tax year if the availability, letting and pattern of occupation conditions are met.

(2) The availability condition is that, during the relevant period, the accommodation is available for commercial letting as holiday accommodation to the public generally for at least 140 days.

(3) The letting condition is that, during the relevant period, the accommodation is commercially let as holiday accommodation to members of the public for at least 70 days.

(4) For the purposes of the letting condition, a letting of accommodation for a period of longer-term occupation (see subsection (6)) is not a letting of it as holiday accommodation.

(5) The pattern of occupation condition is that, during the relevant period, not more than 155 days fall during periods of longer-term occupation.

(6) For the purposes of this section a "period of longer-term occupation" is a continuous period of more than 31 days during which the accommodation is in the same occupation otherwise than because of circumstances that are not normal.

326 Under-used holiday accommodation: averaging elections

(1) This section applies if during a tax year a person lets both--

(a) qualifying holiday accommodation, and

(b) accommodation that would be qualifying holiday accommodation if the letting condition (see section 325(3)) were met in relation to it ("under-used accommodation").

(2) The person may make an election for the tax year specifying--

(a) the qualifying holiday accommodation, and

(b) any or all of the under-used accommodation.

(3) The under-used accommodation so specified is treated as qualifying holiday accommodation for the tax year if the average of the number of let days for the tax year of all the accommodation specified in the election is at least 70.

(4) "The number of let days" for a tax year of any accommodation is the number of days during the relevant period for which it is commercially let by the person as holiday accommodation to members of the public.

(5) Qualifying holiday accommodation may not be specified in more than one election for a tax year.

(6) An election for a tax year must be made on or before the first anniversary of the normal self-assessment filing date for the tax year.

Separate profit calculations

327 Capital allowances and loss relief

(1) If a UK property business consists of both--

(a) the commercial letting of furnished holiday accommodation ("the furnished holiday lettings part"), and

(b) other businesses or transactions ("the other part"),

this section requires separate calculations to be made of the profits of the furnished holiday lettings part and the other part.

(2) The calculations must be made if--

(a) section 248 or 249 of CAA 2001 (giving effect to allowances and charges) applies to the furnished holiday lettings part or the other part, or

(b) any provision of Chapter 1 of Part 10 of ICTA (loss relief) applies in relation to a loss made in either of those parts.

(3) If there is a letting of accommodation only part of which is holiday accommodation, such apportionments are to be made for the purposes of this section as are just and reasonable.

328 Earned income and relevant UK earnings for pension purposes

(1) If a UK property business consists of both--

(a) the commercial letting of furnished holiday accommodation ("the furnished holiday lettings part"), and

(b) other businesses or transactions,

this section requires a separate calculation to be made of the profits of the furnished holiday lettings part.

(2) The calculation must be made if the profits of the furnished holiday lettings part are treated as--

(a) earned income under section 833(4)(c) of ICTA, or

(b) income regarded as relevant UK earnings for pension purposes under section 189(2)(b) of FA 2004.

(3) If there is a letting of accommodation only part of which is holiday accommodation, such apportionments are to be made for the purposes of this section as are just and reasonable.

Chapter 7 Adjustment income

Adjustment on change of basis

329 Application of Chapter

(1) This Chapter applies if--

(a) a person carrying on a UK property business changes, from one period of account to the next, the basis on which profits of the business are calculated for income tax purposes,

(b) the old basis accorded with the law or practice applicable in relation to the period of account before the change, and

(2) The practice applicable in any case means the accepted practice in cases of that description as to how profits of a UK property business should be calculated for income tax purposes.

(3) Subsections (3) to (6) of section 227 (what is meant by a person changing the basis on which profits are calculated) apply for the purposes of this section as they apply for the purposes of that section (but as if any reference to a trade were to a UK property business).

330 Adjustment income and adjustment expense

(1) An amount by way of adjustment must be calculated in accordance with section 231, which applies in relation to a UK property business as it applies in relation to a trade.

(2) If the amount produced by the calculation is positive, it is treated as income and charged to income tax under this Chapter.

It is referred to in this Chapter as "adjustment income".

(3) If the amount produced by the calculation is negative, a deduction is allowed for it in calculating the profits of the business.

It is referred to in this Chapter as an "adjustment expense".

(4) This section is subject to section 234 (no adjustment for certain expenses previously brought into account), which applies in relation to a UK property business as it applies in relation to a trade.

331 Income charged

Tax is charged under this Chapter on the full amount of any adjustment income arising in the tax year.

332 Person liable

The person liable for any tax charged under this Chapter is the person receiving or entitled to the adjustment income.

Treatment of adjustment income and adjustment expense

333 Treatment of adjustment income

(1) Adjustment income is treated as arising on the last day of the first period of account for which the new basis is adopted.

(2) But if there is a change of basis resulting from a tax adjustment affecting the calculation of any amount brought into account in respect of depreciation, adjustment income is treated as arising only when the asset to which it relates is realised or written off.

(3) Adjustment income is treated for the purposes of Chapter 1 of Part 10 of ICTA (loss relief) as profits of the UK property business for the tax year in which tax is charged on it.

334 Treatment of adjustment expense

(1) An adjustment expense is treated as an expense of the business arising on the last day of the first period of account for which the new basis is adopted.

(2) But if there is a change of basis resulting from a tax adjustment affecting the calculation of any amount brought into account in respect of depreciation, an adjustment expense is treated as arising only when the asset to which it relates is realised or written off.

Chapter 8 Rent receivable in connection with a UK section 12(4) concern

Charge to tax on rent receivable in connection with a UK section 12(4) concern

335 Charge to tax on rent receivable in connection with a UK section 12(4) concern

Income tax is charged on rent receivable in connection with a UK section 12(4) concern.

336 Meaning of "rent receivable in connection with a UK section 12(4) concern"

(1) For the purposes of this Chapter rent is receivable in connection with a UK section 12(4) concern if--

(a) it is receivable in respect of an estate, interest or right in or over land in the United Kingdom, and

(b) the estate, interest or right is used, occupied or enjoyed in connection with a concern listed in section 12(4).

(2) For the purposes of this Chapter rent is also receivable in connection with a UK section 12(4) concern if--

(a) it is receivable in respect of an estate, interest or right in or over land in the United Kingdom,

(b) the lease or other agreement under which it is receivable provides for its recoupment by reducing royalties or payments of a similar nature, and

(c) the reduction applies if the estate, interest or right is used, occupied or enjoyed in connection with a concern listed in section 12(4).

(3) In this Chapter "rent" includes--

(a) a receipt mentioned in section 266(3), and

(b) any other receipt in the nature of rent.

337 Income charged

(1) Tax is charged under this Chapter on the full amount of the profits arising in the tax year.

(2) This is subject to--

section 339 (deduction for management expenses of owner of mineral rights), and
section 340 (relief in respect of mineral royalties).

338 Person liable

The person liable for any tax charged under this Chapter is the person receiving or entitled to the rent.

Management expenses of owner of mineral rights

339 Deduction for management expenses of owner of mineral rights

(1) This section applies if in a tax year--

(a) a person lets a right to work minerals in the United Kingdom, and

(b) the person pays a sum wholly and exclusively as an expense of management or supervision of the minerals in the tax year.

(2) In calculating the amount of rent receivable in connection with a UK section 12(4) concern, a deduction is allowed for the sum for the tax year.

(3) This is subject to section 340 (relief in respect of mineral royalties).

Mineral royalties

340 Relief in respect of mineral royalties

(1) This section applies if in a tax year--

(a) a person who is UK resident, or ordinarily UK resident, is entitled to receive mineral royalties under a mineral lease or agreement, and

(b) the royalties are chargeable to tax under this Chapter.

(2) In calculating the amount of the royalties so chargeable, the person is treated as--

(a) entitled to receive only half of the total of the royalties arising under the lease or agreement in the tax year, and

(b) paying in the tax year only half of the total of the expenses mentioned in section 339(1)(b) (deduction for management expenses of owner of mineral rights).

(3) As to the meaning of "mineral lease or agreement" and "mineral royalties", see sections 341 to 343.

341 Meaning of "mineral lease or agreement" and "mineral royalties"

(1) In this Chapter "mineral lease or agreement" means--

(a) a lease, profit à prendre, licence or other agreement conferring a right to win and work minerals in the United Kingdom,

(b) a contract for the sale, or a conveyance, of minerals in or under land in the United Kingdom, and

(c) a grant of a right under section 1 of the Mines (Working Facilities and Support) Act 1966 (c. 4) other than an ancillary right (within the meaning of that Act).

(2) In this Chapter "mineral royalties" means so much of any rent receivable under a mineral lease or agreement as relates to the winning and working of minerals.

(3) For the purposes of this section and section 343 "minerals" means all minerals and substances in or under land which are ordinarily worked for removal--

(a) by underground working, or

(b) by surface working,

but excluding water, peat, top-soil and vegetation.

342 Extended meaning of "mineral royalties" etc. in Northern Ireland

(1) In the application of this Chapter to Northern Ireland references to mineral royalties include the following periodical payments.

(2) The payments are--

(a) payments of compensation under section 29 or 35 of the Mineral Development Act (Northern Ireland) 1969 (c. 35 (N.I.)) ("the 1969 Act"),

(b) payments of compensation under section 4 of the Petroleum (Production) Act (Northern Ireland) 1964 (c. 28 (N.I.)) ("the 1964 Act"),

(d) payments made under section 55(4)(b) of the 1969 Act, and

(e) payments made under section 11 of the 1964 Act (payments in respect of minerals to persons entitled to a share of royalties under section 13(3) of the Irish Land Act 1903 (c. 37)).

(3) In the application of this Chapter to Northern Ireland references to the mineral lease or agreement under which mineral royalties are receivable include the enactment under which those payments are made.

343 Power of Board to determine what counts as "mineral royalties"

The Board of Inland Revenue may by regulations--

(a) provide whether, and to what extent, rents receivable under a mineral lease or agreement which relate both to the winning and working of minerals and to other matters are treated as mineral royalties, and

(b) provide for treating the whole of such rents as mineral royalties if the extent to which they relate to matters other than the winning and working of minerals is small.

Chapter 9 Rent receivable for UK electric-line wayleaves

Charge to tax on rent receivable for UK electric-line wayleaves

344 Charge to tax on rent receivable for a UK electric-line wayleave

Income tax is charged on rent receivable for a UK electric-line wayleave.

345 Meaning of "rent receivable for a UK electric-line wayleave"

(1) For the purposes of this Chapter rent is receivable for a UK electric-line wayleave if--

(a) it is receivable in respect of an easement, servitude or right in or over land in the United Kingdom, and

(b) the easement, servitude or right is enjoyed in connection with an electric, telegraph or telephone wire or cable.

(2) The reference to the enjoyment of an easement, servitude or right in connection with an electric, telegraph or telephone wire or cable includes (in particular) its enjoyment in connection with--

(a) a pole or pylon supporting such a wire or cable, or

(b) apparatus used in connection with such a wire or cable.

(3) In this Chapter "rent" includes--

(a) a receipt mentioned in section 266(3), and

(b) any other receipt in the nature of rent.

346 Extent of charge to tax

(1) Rent receivable for a UK electric-line wayleave is not chargeable to tax under this Chapter for a tax year if--

(a) a person carries on a UK property business in relation to some or all of the land to which the wayleave relates, and

(b) receipts (other than rents receivable for UK electric-line wayleaves) in respect of some or all of that land are brought into account in calculating the profits of the business for the tax year.

(2) In such a case, the rent receivable for the UK electric-line wayleave is brought into account in calculating the profits of the person's UK property business.

(3) The rules for determining whether an amount is chargeable to tax under this Chapter also need to be read with section 22(2) (payments for wayleaves if person carries on a trade).

(4) That subsection secures that an amount which would otherwise be chargeable to tax under this Chapter may be brought into account instead in calculating the profits of a trade.

347 Income charged

Tax is charged under this Chapter on the full amount of the profits arising in the tax year.

348 Person liable

The person liable for any tax charged under this Chapter is the person receiving or entitled to the rent.

Chapter 10 Post-cessation receipts

Charge to tax on post-cessation receipts

349 Charge to tax on post-cessation receipts

Income tax is charged on post-cessation receipts arising from a UK property business.

350 Extent of charge to tax

(1) A post-cessation receipt is chargeable to tax under this Chapter only so far as the receipt is not otherwise chargeable to income or corporation tax.

(2) Accordingly, a post-cessation receipt arising from a UK property business is not chargeable to tax under this Chapter so far as it is brought into account in calculating the profits of the business for any period.

351 Income charged

(1) Tax is charged under this Chapter on the full amount of the receipts received in the tax year.

(2) This is subject to--

(a) sections 254 and 255 (allowable deductions), and

(b) section 257 (election to carry back),

which apply for the purposes of this Chapter as they apply for the purposes of Chapter 18 of Part 2 (but as if any reference to a trade were to a UK property business).

352 Person liable

The person liable for any tax charged under this Chapter is the person receiving or entitled to the receipts.

Meaning of "post-cessation receipts"

353 Basic meaning of "post-cessation receipt"

(1) In this Chapter "post-cessation receipt" means a sum--

(a) which is received after a person permanently ceases to carry on a UK property business, and

(b) which arises from the carrying on of the business before the cessation.

(2) Subsection (3) applies if--

(a) a firm carries on a UK property business,

(b) a person ceases to be a partner in the firm, and

(c) at least one of the persons with whom the partner carried on the business before ceasing to be a partner continues to carry it on afterwards.

(3) The partner is treated for the purposes of this Chapter as permanently ceasing to carry on the business.

354 Other rules about what counts as a "post-cessation receipt"

(1) Section 355 (transfer of rights if transferee does not carry on UK property business) treats certain amounts as being, or not being, post-cessation receipts for the purposes of this Chapter.

(2) The following provisions (which treat certain amounts as post-cessation receipts) apply for the purposes of this Chapter as they apply for the purposes of Chapter 18 of Part 2 (but as if any reference to a trade were to a UK property business)--

section 82(6) (contributions to local enterprise organisations or urban regeneration companies),
section 104(3) (distribution of assets of mutual concerns),
section 109(2) (receipt by donor or connected person of benefit attributable to certain gifts),
section 248 (debts paid after cessation),
section 249 (debts released after cessation), as qualified, where appropriate, by section 48(4) (car or motor cycle hire), and
section 250 (receipts relating to post-cessation expenditure).

(3) This Chapter also needs to be read with--

(a) section 310(3) (which treats certain amounts as not being post-cessation receipts), and

(b) section 844 (which treats certain income as a post-cessation receipt: unremittable income).

355 Transfer of rights if transferee does not carry on UK property business

(1) This section applies if--

(a) a person ("the transferor") permanently ceases to carry on a UK property business,

(b) the transferor transfers to another person ("the transferee") for value the right to receive sums arising from the carrying on of any business ("the transferred business") comprised in the transferor's UK property business, and

(2) The transferor is treated as receiving a post-cessation receipt.

(3) The amount of the receipt is--

(a) the amount or value of the consideration for the transfer, if the transfer is at arm's length, or

(b) the value of the rights transferred as between parties at arm's length, if the transfer is not at arm's length.

(4) Any sums mentioned in subsection (1)(b) which are received after the cessation of the property business are not post-cessation receipts.

Supplementary

356 Application to Schedule A businesses

(1) In this Chapter (except in section 355) any reference to a UK property business includes a Schedule A business.

(2) In this Chapter (except in section 355) any reference to a person permanently ceasing to carry on a UK property business includes the occurrence of an event which under section 337 of ICTA is treated as the discontinuance of a Schedule A business.

(3) In applying any provision of Chapter 18 of Part 2 for the purposes of this Chapter references to the calculation of the profits of a trade for corporation tax purposes are to be read as references to the calculation of the profits of a Schedule A business for corporation tax purposes.

Chapter 11 Overseas property income

357 Charge to tax on overseas property income

Income tax is charged on the overseas property income of a person to whom the remittance basis applies.

358 Meaning of "overseas property income"

In this Chapter "overseas property income", in relation to a person to whom the remittance basis applies, means amounts which--

(a) are not brought into account in calculating the profits of any overseas property business of the person, but

(b) would be if section 269(3) (charge to tax on profits of an overseas property business of a person to whom the remittance basis applies only in respect of land in the Republic of Ireland) were omitted.

359 Income charged

Tax is charged under this Chapter on the amount specified by section 832 (relevant foreign income charged on the remittance basis).

360 Person liable

The person liable for any tax charged under this Chapter is the person receiving or entitled to the income.

Chapter 12 Supplementary

361 Changes in trustees and personal representatives

(1) This section applies if there is a change--

(a) in the trustees of a trust, or

(b) in the personal representatives of a person,

at a time when they are carrying on a property business.

(2) For income tax purposes, the change does not result in--

(a) any of the trustees or personal representatives before the change permanently ceasing to carry on the business, or

(b) any of the trustees or personal representatives after the change starting to carry on the business.

362 Effect of company starting or ceasing to be within charge to income tax

(1) This section applies if a company starts or ceases to be within the charge to income tax under Chapter 3 of this Part in respect of a UK property business.

(2) The company is treated for the purposes of this Part--

(a) as starting to carry on the business when it starts to be within the charge, or

(b) as permanently ceasing to carry on the business when it ceases to be within the charge.

363 Overseas property businesses and overseas land: adaptation of rules

(1) This section applies if a provision of this Part--

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