Annex 1: Minor Changes in the Law Change 11: Trading income: lease premiums etc: deduction for tenant under taxed lease if land is outside the United Kingdom: sections 62 and 66
This change makes relief available for tenants under taxed leases of land used in connection with a trade, where the land is outside the United Kingdom.
It brings the income tax and corporation tax codes back into line.
Section 87(2) of ICTA provides in certain cases for a trading deduction to be given to a tenant under a lease, if previously an “amount chargeable” had arisen in relation to the lease concerned.
Section 87(1) of ICTA defines “amount chargeable” to include:
Section 70A(5) of ICTA provides that:
So if the lease is of land outside the United Kingdom, sections 34 and 35 of ICTA may apply to a landlord/assignor by virtue of section 70A(5) of ICTA. The amount given by section 34 or 35 of ICTA in cases where the land is outside the United Kingdom is treated as a receipt of an overseas property business.
But section 70A(5) of ICTA does not deem an overseas property business receipt to be a receipt of a Schedule A business. So a company occupying land outside the United Kingdom under a lease in respect of which the landlord has been treated as receiving an overseas property business receipt is not entitled to relief, under section 87(2) of ICTA (see the italicised words in the above extract from section 87(1) of ICTA), in circumstances in which it would have been entitled to relief if the land had been in the United Kingdom.
Similarly a company which occupies land outside the United Kingdom under a lease in respect of which the landlord has been treated as receiving an overseas property business receipt under sections 277 to 282 of ITTOIA is not entitled to relief in circumstances in which it would have been entitled to relief if the land had been in the United Kingdom. That is because section 87(1)(c) of ICTA refers to amounts which are treated as receipts of a UK property business under sections 277 to 282 of ITTOIA.
Section 62(1) provides for a tenant to be treated as incurring expenses by reference to a taxed receipt under section 63 regardless of where the land in question is situated. Section 66(1) restricts, regardless of where the land in question is situated, the expenses that section 65 (land not occupied by tenant but employed for purposes of tenant’s trade) treats a tenant as incurring under section 63 where there is a reduction under the additional calculation rule by reference to that taxed receipt. The same changes were made for income tax in sections 60 and 64 of ITTOIA (see Change 13 in ITTOIA).
This change will result in a company receiving relief under section 63 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. This means that widening entitlement to relief under section 63 may, in certain circumstances, 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.