Annex 1: Minor changes in the law made by the Act: Change 15: Restrictions on expenses under sections 61 and 292: sections 64, 65, 293 and 294
This change clarifies how expenses that a tenant is treated as incurring by reference to a taxed receipt under sections 61 or 292 are affected in cases in which there is a reduction under section 288 by reference to the taxed receipt in calculating the amount of a receipt.
Section 37(4) of ICTA provides:
“Subject to subsection (5) below, the person for the time being entitled to the head lease shall be treated for the purpose, in computing the profits of a Schedule A business, of making deductions in respect of the disbursements and expenses of that business as paying rent for those premises (in addition to any actual rent), becoming due from day to day, during any part of the period in respect of which the amount chargeable on the superior interest arose for which he was entitled to the head lease, and, in all, bearing to that amount the same proportion as that part of the period bears to the whole.”
Section 37(4) of ICTA is rewritten in sections 291 and 292.
Section 37(5) of ICTA modifies section 37(4) of ICTA, if the reduced amount of a later chargeable amount has been calculated under section 37(2) of ICTA by reference to the amount chargeable on the superior interest. Section 37(5) of ICTA provides:
“Where subsection (2) above applies, subsection (4) above shall apply for the period in respect of which the later chargeable amount arose only if the appropriate fraction of the amount chargeable on the superior interest exceeds the later chargeable amount, and shall then apply as if the amount chargeable on the superior interest were reduced in the proportion which that excess bears to that appropriate fraction.”
Section 37(5) of ICTA is rewritten in section 293.
The general principle behind section 37(5) of ICTA is that if part of the amount chargeable on the superior interest has been used to reduce the amount of a later chargeable amount, only the balance of the amount chargeable on the superior interest should be available under section 37(4) of ICTA. This is achieved by reducing the amount of rent that the tenant is treated as paying under section 37(4) of ICTA for the period in respect of which the later chargeable amount arose. If in the calculation under section 37(2) of ICTA the appropriate fraction of the amount chargeable on the superior interest did not exceed the later chargeable amount, section 37(4) of ICTA does not apply. So the tenant is not treated as paying rent under section 37(4) of ICTA for the period in respect of which the later chargeable amount arose.
Section 87(5) of ICTA applies section 37(5) of ICTA if a tenant under a taxed lease is treated as paying rent under section 87(2) of ICTA in circumstances in which section 87(4) of ICTA applies.
This change is adverse to some taxpayers and favourable to others in principle and in practice. But the numbers affected and the amounts involved are likely to be small.