Annex 1: Minor Changes in the Law Change 53: Property income: rent receivable in connection with a section 39(4) concern where the rent is paid in kind: section 270 and Schedule 1
This change concerns repealing section 119(2) of ICTA without rewriting it.
It brings the income tax and corporation tax codes back into line.
Section 119 of ICTA makes provision about rent payable in respect of any land or easement “used, occupied or enjoyed in connection with any of the concerns specified in section 55(2)”. Section 55 of ICTA includes mines, quarries, certain industrial concerns, canals, docks, markets, bridges, ferries and railways.
Section 119(1) of ICTA provides for the rent from such easements to be charged under Schedule D but it does not specify under which Case of Schedule D the rent is to be charged.
Section 119(2) of ICTA provides for the rent to be taxed under Schedule D Case III if the rent is paid in produce of the concern. If section 119(2) does not apply, the rent is charged under a provision in the table in section 834A of ICTA. The table in section 834A is inserted by Part 1 of Schedule 1 to this Act, and is a list of places where some of the Schedule D Case VI charges are rewritten.
When section 119 of ICTA was introduced as section 34 of FA 1934 the lessee was required to deduct income tax when paying rent to the lessor. This was achieved by treating the rent as a royalty paid in respect of the user of a patent. But it would be impractical to deduct income tax if the rent were paid in kind. So what is now section 119(2) charged rent paid in kind under Schedule D Case III. This avoided the requirement to deduct income tax because these rents are not a category of income from which tax is deducted. Since the requirement to deduct income tax from rents taxable under section 119 of ICTA was repealed a separate charge on rents paid in kind is no longer required.
Section 119 of ICTA is rewritten in Chapter 7 of Part 4 of this Act. The charge under Chapter 7 does not distinguish rents that are paid in produce. This represents a change from the position under ICTA. The rewrite of the charge under Schedule D Case III has been absorbed into the rewrite of the charge under Schedule D Case VI (see the table in section 834A of ICTA).
There is no difference between Schedule D Cases III and VI in the basis of assessment.
There may be a minor difference in the deductions that are allowed in calculating the income. Section 70(1) of ICTA provides that:
	income shall be computed under Cases I to VI of Schedule D on the full amount of the profits or gains or income arising in the period … without any other deduction than is authorised by the Corporation Tax Acts
No deduction is allowed under Schedule D Case III. Although Schedule D Case VI does not specify that any deductions may be allowed the word “profits” implies a calculation under which expenses are deducted from the income.
In practice it is likely that most income to which section 119(2) of ICTA applies is covered by section 121 of ICTA (rewritten as section 272 in this Act). That section provides for specific deductions to be made in taxing mineral rents and royalties. In the event that rewriting the charge under Schedule D Case III according to the rules of Schedule D Case VI allows any taxpayer to claim any deduction that would not otherwise be allowable the amounts involved are likely to be small.
A further minor difference is that the income charged under Chapter 7 of Part 4 of this Act is subject to the loss regime in section 396 of ICTA. In the unlikely event that the deductions allowable exceed the rent charged under Chapter 7 the loss can be set against other income charged under a provision in the table in section 834A of ICTA. The more likely case is that losses on other income taxed under such a provision by the current law can be set against this income. But losses under those provisions are uncommon, as are rents paid in kind.
This change allows the deduction of amounts that are not deductible under the source legislation.
This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small.