Annex 1: Minor Changes in the Law Change 48: Property income: lease premiums etc: relief for tenant under taxed lease if land is outside the United Kingdom: section 227
This change restores a relief that was incorrectly removed from ICTA by ITTOIA.
It brings the income tax and corporation tax codes back into line.
Section 37(1) of ICTA provides that:
That subsection sets out the condition for the availability of the reliefs given by section 37(2) or (4) of ICTA (reduction of later chargeable amount or tenant treated as paying rent). Each of those reliefs applies in calculating the profits of a Schedule A business.
Section 70A(5) of ICTA provides that:
	income from an overseas property business shall be computed for the purposes of Case V of Schedule D in accordance with the rules applicable to the computation of the profits of a Schedule A business.
Section 70A(5) of ICTA therefore extends the reliefs under section 37 of ICTA to land outside the UK.
Where section 37(2) or (4) of ICTA applies in relation to land outside the UK, the reference in section 37(1)(a) of ICTA to a receipt of a Schedule A business must be read as a reference to a receipt of an overseas property business.
Section 37(1)(c) of ICTA was inserted by paragraph 20(2)(b) of Schedule 1 to ITTOIA to provide for relief under section 37 of ICTA where the superior landlord is liable to income tax. But because section 37(1)(c) refers to a UK property business (see italicised words above) it excludes relief in the case where the superior landlord was liable to income tax in respect of a property outside the UK.
The relief corresponding to section 37 of ICTA in sections 287 to 295 of ITTOIA applies to property outside the UK in the same way as to property in the UK.
The reference to a “UK property business” in section 37(1)(c) of ICTA was introduced in error when that paragraph was inserted by ITTOIA. Section 227(4) corrects that error and is in line with the corresponding ITTOIA provision (section 287(4) of that Act, as amended by Schedule 1 to this Act). The change will result in a company receiving relief in circumstances where there is currently no entitlement to relief.
Section 295 of ITTOIA (as amended by Schedule 1 to this Act) and section 235 place a cap on the total amount of relief that can be obtained by reference to a taxed receipt. So if, as a result of this change, the relief to which a tenant is entitled is increased, this may reduce the amount of relief subsequently available to other persons under Chapter 4 of Part 3 of ITTOIA or under Chapter 4 of Part 4 of this Act.
This change is in principle and in practice adverse to some taxpayers and favourable to others. But the numbers affected and the amounts involved are likely to be small.