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

Part 3 U.K. Property income

Chapter 3 U.K. Profits of property businesses: basic rules

Charge to tax on profits of a property business U.K.

268 Charge to tax on profits of a property business U.K.

Income tax is charged on the profits of a property business.

269 Territorial scope of charge to tax U.K.

(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.

F1 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F2 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1 S. 269(3) omitted (with effect in accordance with Sch. 7 para. 81 of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 7 para. 48

F2 S. 269(4) omitted (with effect in accordance with Sch. 7 para. 81 of the amending Act) by virtue of Finance Act 2008 (c. 9), Sch. 7 para. 48

270 Income charged U.K.

(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).

[F3 (3) 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.]

Textual Amendments

F3 S. 270(3)-(5) inserted (with effect in accordance with Sch. 45 para. 153(2) of the amending Act) by Finance Act 2013 (c. 29), Sch. 45 para. 81

271 Person liable U.K.

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

[F4 Basis of calculation of profits U.K.

Textual Amendments

F4 Ss. 271A-271D and cross-heading inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 13

271A Basis of calculation of profits: GAAP required U.K.

(1) The profits of a property business for a tax year must be calculated in accordance with GAAP if condition A, B, C, D or E is met.

(2) Condition A is that the business is carried on at any time in the tax year by—

(a) a company,

(b) a limited liability partnership,

(c) a corporate firm, or

(d) the trustees of a trust.

(3) For the purposes of subsection (2) a firm is a “corporate firm” if a partner in the firm is not an individual.

(4) Condition B is that the cash basis receipts for the tax year exceed £150,000.

(5) In subsection (4) “the cash basis receipts for the tax year” means the total of the amounts that would be brought into account as receipts in calculating the profits of the property business for the tax year on the cash basis (see section 271D).

(6) If the property business is carried on for only part of the tax year, the sum given in subsection (4) is proportionately reduced.

(7) Condition C is that—

(a) the property business is carried on by an individual (“P”),

(b) a share of joint property income is brought into account in calculating the profits of the business for the tax year,

(c) a share of that joint property income is brought into account in calculating the profits for the tax year of a property business carried on by another individual (“Q's property business”), and

(d) the profits of Q's property business for the tax year are calculated in accordance with GAAP.

(8) In subsection (7) “joint property income” means income to which P and Q are treated for income tax purposes as beneficially entitled in equal shares by virtue of section 836 of ITA 2007.

(9) Condition D is that—

(a) an allowance under Part 3A of CAA 2001 (business premises renovation allowances) is made at any time in calculating the profits of the property business, and

(b) if the profits of the business were to be calculated in accordance with GAAP for the tax year, there would be a day in the tax year on which the occurrence of a balancing event (within the meaning of that Part) would give rise to a balancing adjustment for the tax year (see section 360M of that Act).

(10) Condition E is that an election under this subsection made by the person who is or has been carrying on the property business has effect in relation to the business for the tax year.

(11) An election under subsection (10) must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the election is made.

(12) The Treasury may by regulations—

(a) amend subsection (2);

(b) amend subsection (4) so as to substitute another sum for the sum for the time being specified in that subsection.

(13) A statutory instrument containing regulations under subsection (12) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.

(14) Subsection (13) does not apply if the regulations omit one or more paragraphs of subsection (2) and make no other provision.

271B Calculation of profits in accordance with GAAP U.K.

(1) In this Part, references to calculating the profits of a property business in accordance with GAAP are to calculating the profits in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law in calculating profits for income tax purposes.

(2) A requirement under this Part to calculate profits in accordance with GAAP does not—

(a) require a person to comply with the requirements of the Companies Act 2006 or subordinate legislation made under that Act except as to the basis of calculation, or

(b) impose any requirements as to audit or disclosure.

(3) See section 272 (application of trading income rules: GAAP) which applies only where profits are calculated in accordance with GAAP.

271C Basis of calculation of profits: cash basis required U.K.

The profits of a property business for a tax year must be calculated on the cash basis if none of conditions A, B, C, D or E in section 271A is met.

271D Calculation of profits on the cash basis U.K.

(1) In this Part, references to calculating the profits of a property business on the cash basis are to calculating the profits in accordance with subsections (2) and (3).

(2) In calculating the profits, receipts of the business are brought into account at the time they are received, and expenses of the business are brought into account at the time they are paid.

(3) Subsection (2) is subject to any adjustment required or authorised by law in calculating profits for income tax purposes.

(4) For provision about the application of Chapter 4 (profits of property businesses: lease premiums etc) in relation to profits calculated on the cash basis, see section 276A.

(5) For provision about the application of Chapter 5 (rules about deductions and receipts) in relation to profits calculated on the cash basis, see section 307A.

(6) The following provisions apply only where profits are calculated on the cash basis—

(a) section 272ZA (application of trading income rules: cash basis), and

(b) Chapter 7A (cash basis: adjustments for capital allowances).]

Calculation of profits [F5 : application of trading income rules] U.K.

Textual Amendments

F5 Words in s. 272 cross-heading inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 14

[F6 271E 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 this is subject to—

(a) section 272, which limits the rule in subsection (1) in relation to a property business whose profits are calculated in accordance with GAAP, and

(b) section 272ZA, which limits that rule in relation to a property business whose profits are calculated on the cash basis.]

Textual Amendments

F6 S. 271E inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 15

272 [F7 Application of trading income rules: GAAP] U.K.

F8 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) [F9 In relation to a property business whose profits are calculated in accordance with GAAP, the provisions of Part 2 (trading income) which apply as a result of section 271E(1) are limited to the following—]

In Chapter 3 (basic rules)—
F10 . . .	F10 . . .
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
[F11 section 28A	money's worth]
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 [F12 50B]	car F13 ... hire
F14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
section 52	exclusion of double relief for interest
section 53	social security contributions
section 54	penalties[F15 , interest and VAT surcharges] [F15 and interest]
section 55	crime-related payments
[F16 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
F17 . . .	F17 . . .
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
[F18 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
[F19 section 94A	costs of setting up SAYE option scheme or CSOP scheme]
[F20 section 94AA	deductions in relation to salaried members of limited liability partnerships]
[F21 In Chapter 5A (deductions allowable at a fixed rate)
section 94C	exclusion of provisions of Chapter 5A for firms with partner who is not an individual
sections 94D to 94G	expenditure on vehicles]
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
[F22 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

F7 S. 272 heading substituted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 16(2)

F8 S. 272(1) omitted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 16(3)

F9 Words in s. 272(2) substituted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 16(4)

F10 S. 272(2) entry omitted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 16(5)

F11 Words in s. 272(2) Table inserted (with effect in accordance with s. 71(7) of the amending Act) by Finance Act 2016 (c. 24), s. 71(3)

F12 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)

F13 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)

F14 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)

F15 Words in s. 272(2) substituted (1.1.2023 for specified purposes) by Finance Act 2021 (c. 26), s. 118(2), Sch. 27 para. 32; S.I. 2022/1278, reg. 2(3)(4)(b)

F16 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)

F17 Words in s. 272(2) Table omitted (with effect in accordance with s. 72(4) of the amending Act) by virtue of Finance Act 2016 (c. 24), s. 72(2)(b)

F18 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

F19 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)

F20 Words in s. 272(2) Table inserted (6.4.2014) by Finance Act 2014 (c. 26), Sch. 17 paras. 3(3), 6

F21 Words in s. 272(2) Table inserted (with effect in accordance with s. 36(8) of the amending Act) by Finance Act 2018 (c. 3), s. 36(4)

F22 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)

[F23 272ZA Application of trading income rules: cash basis U.K.

(1) In relation to a property business whose profits are calculated on the cash basis, the provisions of Part 2 (trading income) which apply as a result of section 271E(1) are limited to the following—

“In Chapter 3 (basic rules)—
section 26	losses calculated on same basis as profits
section 28A	money's worth
section 29	interest
In Chapter 4 (rules restricting deductions)—
section 34	expenses not wholly and exclusively for trade and unconnected losses
sections 38 to 42 and 44	employee benefit contributions
sections 45 to 47	business entertainment and gifts
section 52	exclusion of double relief for interest
section 53	social security contributions
section 54	penalties[F24 , interest and VAT surcharges] [F24 and interest]
section 55	crime-related payments
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 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 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
[F25 In Chapter 5A (deductions allowable at a fixed rate)—
section 94C	exclusion of provisions of Chapter 5A for firms with partner who is not an individual
sections 94D to 94G	expenditure on vehicles]
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(1) and (2)(b) and (c)	industrial development grants
section 106	sums recovered under insurance policies etc
In Chapter 6A (amounts not reflecting commercial transactions)—
section 106C	amounts not reflecting commercial transactions
section 106D	capital receipts
section 106E	gifts to charities etc
In Chapter 7 (gifts to charities etc)—
section 109	receipt by donor or connected person of benefit attributable to certain gifts”

(2) In those provisions, the expression “this Part” is to be read as a reference to those provisions as applied by subsection (1) and to the other provisions of Part 3.

(3) In section 106D, the reference to subsection (4) or (5) of section 96A is to be read as a reference to subsection (2), (3) or (5) of section 307F (deemed capital receipts under, or after leaving, cash basis).]

Textual Amendments

F23 S. 272ZA inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 17

F24 Words in s. 272ZA(1) substituted (1.1.2023 for specified purposes) by Finance Act 2021 (c. 26), s. 118(2), Sch. 27 para. 33; S.I. 2022/1278, reg. 2(3)(4)(b)

F25 Words in s. 272ZA(1) Table inserted (with effect in accordance with s. 36(8) of the amending Act) by Finance Act 2018 (c. 3), s. 36(5)

[F26 Calculation of profits: other general rules] U.K.

Textual Amendments

F26 S. 272A cross-heading inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 18

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.

[F27 (7) See also section 307D (cash basis: modification of deduction for costs of loans).]

Textual Amendments

F27 S. 272A(7) inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 19

Modifications etc. (not altering text)

C1 S. 272A excluded (6.4.2017) by S.I. 2002/2006, reg. 11(2A) (as inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Tax Credits (Definition and Calculation of Income) (Amendment) Regulations 2017 (S.I. 2017/396), regs. 1(1), 5)

C2 S. 272A(1)-(4) excluded by 2007 c. 3, s. 504 (as modified by S.I. 2013/2819, reg. 32(3) (as inserted (7.1.2016) by S.I. 2015/2053, reg. 4))

C3 S. 272A(1)-(4) excluded by S.I. 2013/2819, reg. 12(3A) (as inserted (7.1.2016) by The Unauthorised Unit Trusts (Tax) (Amendment No. 2) Regulations 2015 (S.I. 2015/2053), regs. 1, 3)

[F28 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

F28 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

[F29 (b) is subject to—

(i) section 36 (unpaid remuneration), as applied by section 272,

(ii) section 38 (employee benefit contributions), as applied by sections 272 and 272ZA,

(iii) section 48 (car hire), as applied by section 272,

(iv) section 55 (crime-related payments), as applied by sections 272 and 272ZA,

(v) section 272A (finance costs), and

(vi) section 307D (cash basis: modification of deduction for costs of loans).]

[F30 (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 [F31 36, 38,] 48 and 55, as applied by section 272 [F32 , or sections 38 and 55 as applied by section 272ZA] [F33 , and apart also from [F34 sections 272A and 307D]]) which might otherwise be read as—

(a) prohibiting the deduction, or

(b) restricting the amount of the deduction.

[F35 (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 [F36 or 272ZA].

Textual Amendments

F29 S. 274(1)(b) substituted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 20(2)

F30 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)

F31 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)

F32 Words in s. 274(3) inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 20(3)(a)

F33 Words in s. 274(3) inserted (18.11.2015) by Finance (No. 2) Act 2015 (c. 33), s. 24(4)

F34 Words in s. 274(3) substituted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 20(3)(b)

F35 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)

F36 Words in s. 274(4) inserted (16.11.2017) (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 20(4)

[F37 Tax reductions for non-deductible costs of a dwelling-related loan U.K.

Textual Amendments

F37 Ss. 274A-274C substituted for s. 274A (15.9.2016) by Finance Act 2016 (c. 24), s. 26(1)

274A Reduction for individuals: entitlement U.K.

(1) If for a tax year an individual has—

(a) a relievable amount in respect of a property business, or

(b) two or more relievable amounts each in respect of a different property business,

the individual is entitled to relief under this section for that year in respect of that relievable amount or (as the case may be) each of those relievable amounts.

(2) An individual has a relievable amount for a tax year in respect of a property business if for that year the individual has any one or more of the following in respect of that business—

(a) a current-year amount;

(b) a current-year estate amount;

(c) a brought-forward amount.

(3) An individual's relievable amount for a tax year in respect of a property business is the total of—

(a) the individual's current-year amount (if any) for that year in respect of that business,

(b) the individual's current-year estate amounts (if any) for that year in respect of that business, and

(c) the individual's brought-forward amount (if any) for that year in respect of that business.

(4) An individual has a current-year amount for a tax year in respect of a property business if—

(a) an amount (“A”) would be deductible in calculating the profits for income tax purposes of that business for that year but for section 272A,

(b) the individual is liable for income tax on N% of those profits, where N is a number—

(i) greater than 0, and

(ii) less than or equal to 100, and

(c) that liability is not under Chapter 6 of Part 5 (estate income),

in which event the individual's current-year amount for that tax year in respect of that business is equal to N% of A.

(5) An individual has a current-year estate amount for a tax year (“the current year”), in respect of a property business and a particular deceased person's estate, if—

(a) an amount (“A”) would, but for section 272A, be deductible in calculating the profits for income tax purposes of that business for a particular tax year (“the profits year”), whether that year is the current year or an earlier tax year,

(b) the personal representatives of the deceased person are liable for income tax on N% of those profits, where N is a number—

(i) greater than 0, and

(ii) less than or equal to 100,

(c) the individual is liable for income tax on estate income treated under Chapter 6 of Part 5 as arising in the current year from an interest in the estate, and

(d) the basic amount of that estate income consists of, or includes, an amount representative of E% of the personal representatives' N% of the profits of the business for the profits year, where E is a number—

(i) greater than 0, and

(ii) less than or equal to 100,

in which event the individual's current-year estate amount for the current tax year, in respect of that business and estate and the profits year, is equal to E% of N% of A.

(6) As to whether an individual has a brought-forward amount for a tax year in respect of a property business, see section 274AA(4).

(7) In this section and section 274AA—

• “estate income”, and

• “basic amount” in relation to any estate income,

have the same meaning as in Chapter 6 of Part 5 (see sections 649 and 656(4)).

274AA Reduction for individuals: calculation U.K.

(1) This section applies if for a tax year an individual is entitled to relief under section 274A in respect of a relievable amount or in respect of each of two or more relievable amounts, and in the following subsections of this section “relievable amount” means that relievable amount or (as the case may be) any of those relievable amounts.

(2) In respect of a relievable amount, the actual amount on which relief for the year is to be given is (subject to subsection (3)) the amount (“L”) that is the lower of—

(a) the relievable amount, and

(b) the total of—

(i) the profits for income tax purposes of the property business concerned for the year after any deduction under section 118 of ITA 2007 (“the adjusted profits”) or, if less, the share (if any) of the adjusted profits on which the individual is liable to income tax otherwise than under Chapter 6 of Part 5, and

(ii) so much (if any) of the relievable amount as consists of current-year estate amounts.

(3) If S is greater than the individual's adjusted total income for the year (“ATI”), the actual amount on which relief for the year is to be given in respect of a relievable amount is given by—

where—

S is the total obtained by identifying the amount that is L for each relievable amount and then finding the total of the amounts identified, and

L has the same meaning as in subsection (2).

(4) Where—

(a) a relievable amount,

is greater than—

(b) the actual amount on which relief for the year is to be given in respect of the relievable amount,

the difference is the individual's brought-forward amount for the following tax year in respect of the property business concerned.

(5) The amount of the relief for the year in respect of a relievable amount is given by—

where—

AA is the actual amount on which relief for the year is to be given in respect of the relievable amount, and

BR is the basic rate of income tax for the year,

(6) For the purposes of this section, an individual's adjusted total income for a tax year is identified as follows—

• Step 1 Identify the individual's net income for the year (see Step 2 of the calculation in section 23 of ITA 2007).

• Step 2 Exclude from that net income—

  (a)

  so much of it as is within section 18(3) or (4) of ITA 2007 (income from savings), and

  (b)

  so much of it as is dividend income.

• Step 3 Reduce what is left after Step 2 of this calculation by the amount of any allowances deducted for the year in the individual's case at Step 3 of the calculation in section 23 of ITA 2007. The result is the individual's adjusted total income for the year.

274B Reduction for accumulated or discretionary trust income: entitlement U.K.

(1) If for a tax year the trustees of a settlement have—

(a) a relievable amount in respect of a property business, or

(b) two or more relievable amounts each in respect of a different property business,

the trustees of the settlement are entitled to relief under this section for that year in respect of that relievable amount or (as the case may be) each of those relievable amounts.

(2) The trustees of a settlement have a relievable amount for a tax year in respect of a property business if for that year the trustees of the settlement have a current-year amount, or brought-forward amount, in respect of that business (or have both).

(3) In the case of trustees of a settlement, their relievable amount for a tax year in respect of a property business is the total of—

(a) their current-year amount (if any) for that year in respect of that business, and

(b) their brought-forward amount (if any) for that year in respect of that business.

(4) The trustees of a settlement have a current-year amount for a tax year in respect of a property business if—

(a) an amount (“A”) would be deductible in calculating the profits for income tax purposes of that business for that year but for section 272A,

(b) the trustees of the settlement are liable for income tax on N% of those profits, where N is a number—

(i) greater than 0, and

(ii) less than or equal to 100, and

(c) in relation to the trustees of the settlement, that N% of those profits is accumulated or discretionary income,

in which event the current-year amount of the trustees of the settlement for that tax year in respect of that business is equal to N% of A.

(5) As to whether the trustees of a settlement have a brought-forward amount for a tax year in respect of a property business, see section 274C(3).

(6) In this section and section 274C “accumulated or discretionary income” has the meaning given by section 480 of ITA 2007.

274C Reduction for accumulated or discretionary trust income: calculation U.K.

(1) This section applies if for a tax year the trustees of a settlement are entitled to relief under section 274B in respect of a relievable amount or in respect of each of two or more relievable amounts, and in the following subsections of this section “relievable amount” means that relievable amount or (as the case may be) any of those relievable amounts.

(2) The amount of the relief in respect of a relievable amount is given by—

where—

BR is the basic rate of income tax for the year, and

L is the lower of—

(a)

the relievable amount, and

(b)

the profits for income tax purposes of the property business concerned for the year after any deduction under section 118 of ITA 2007 (“the adjusted profits”) or, if less, the share of the adjusted profits—

(i)

on which the trustees of the settlement are liable for income tax, and

(ii)

which, in relation to the trustees of the settlement, is accumulated or discretionary income.

(3) Where L in the case of a relievable amount is less than the relievable amount, the difference between them is the brought-forward amount of the trustees of the settlement for the following tax year in respect of the property business concerned.]

Apportionment of profits U.K.

275 Apportionment etc. of profits to tax year U.K.

(1) [F38 This section and sections 275A to 275C apply] 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.

[F39 (5) Sections 275A and 275B contain rules for the purpose of avoiding the need to apportion profits or losses under this section (and section 275C makes provision for the person carrying on the business to elect for those rules not to apply).]

Textual Amendments

F38 Words in s. 275(1) substituted (for the tax year 2023-24 and subsequent tax years) by Finance Act 2022 (c. 3), s. 8(2)(a)(4)

F39 S. 275(5) inserted (for the tax year 2023-24 and subsequent tax years) by Finance Act 2022 (c. 3), s. 8(2)(b)(4)

[F40 275A Rule if person starts to carry on business after 31 March U.K.

(1) This section applies if, in a tax year (“the relevant tax year”), the person carrying on the business—

(a) starts to carry it on after 31 March, and

(b) does not permanently cease to carry it on.

(2) For the purposes of this Part—

(a) the profits or losses of the business of the relevant tax year are treated as nil, and

(b) the actual profits or losses of the business of the relevant tax year are treated as arising in the following tax year.

Textual Amendments

F40 Ss. 275A-275C inserted (for the tax year 2023-24 and subsequent tax years) by Finance Act 2022 (c. 3), s. 8(3)(4)

275B Rule if there is a late accounting date U.K.

(1) This section applies if, in a tax year (“the relevant tax year”), the person carrying on the business—

(a) does not start to carry it on or starts to carry it on before 1 April,

(b) does not permanently cease to carry it on, and

(c) has an accounting date that is 31 March or 1, 2, 3 or 4 April.

(2) For the purposes of this Part—

(a) the profits or losses of the business of the period beginning with the day after the accounting date and ending with 5 April in the relevant tax year are treated as nil, and

(b) the actual profits or losses of the business of that period are treated as arising in the following tax year.

(3) In this section, “accounting date” in relation to a tax year means—

(a) the date in the tax year to which accounts are drawn up, or

(b) if there are two or more such dates, the latest of them.

Textual Amendments

F40 Ss. 275A-275C inserted (for the tax year 2023-24 and subsequent tax years) by Finance Act 2022 (c. 3), s. 8(3)(4)

275C Election to disapply late accounting date rules U.K.

(1) The person carrying on the business may make an election under this section.

(2) If an election under this section has effect for a tax year, neither of sections 275A and 275B apply in relation to the business for that tax year.

(3) An election under this section—

(a) must be made on or before the first anniversary of the normal self-assessment filing date for the first tax year for which it is to have effect, and

(b) has effect for that tax year and the four tax years following that tax year (subject to subsection (4)).

(4) If the person permanently ceases to carry on the business before the end of the last of the tax years mentioned in subsection (3)(b), the election has effect for each tax year up to and including the tax year immediately before the tax year in which the person permanently ceases to carry on the business.]

Textual Amendments

F40 Ss. 275A-275C inserted (for the tax year 2023-24 and subsequent tax years) by Finance Act 2022 (c. 3), s. 8(3)(4)