PIM1015 - Basis of assessment – special rules for end of tax year

Introduction

Finance Act 2022 repealed the basis period rules for returning income tax on trading profits. Along with those changes the following amendments were made to the income tax rules for property income.

Property businesses commencing on or after 1 April

Under s275A ITTOIA05, if a person commences a property business on or after 1 April in a tax year and does not cease the business by 5 April in the same tax year, then the property business is treated as commencing in the following tax year and the profit or loss in the first tax year is treated as nil.

For example, if a person commences a property business on 1 April 2024 and continues it into the tax year 2024/25 then:

  • The profit or loss for the tax year 2023/24 is nil; and
  • The profit or loss from the period 1-5 April 2024 is treated as arising in 2024/25.

Late accounting dates

Section 275B ITTOIA05 applies where:

  • A person did not commence a property business during the tax year, or commenced it on or before 1 April;
  • Has an accounting date between 31 March and 4 April; and
  • Did not cease to carry on the property business during the tax year.

In those circumstances the profit or loss in the period from the day after the accounting date to 5 April is treated as nil in that tax year, and is instead treated as arising in the following tax year.

The ‘accounting date’ means the date to which accounts are drawn up. If there is more than one accounting date in a tax year then the accounting date for the purposes of s275B is the date which occurs latest in the tax year.

For example, if a person with an ongoing property business prior to 6 April 2023 draws up accounts to 31 March each year and continues their property business into 2024/25:

  • The profit or loss arising in the year ended 31 March 2024 is treated as the profit or loss for the tax year 2023/24; and
  • The profit or loss from the period 1-5 April 2024 is treated as arising in 2024/25.

Some taxpayers may already be reporting property profits in a period which is not quite in line with the tax year under s275(4) ITTOIA05 (see PIM1010). Those taxpayers will naturally progress into the s275B rule with little or no practical change to the reporting of their profits.

Election to disapply late accounting rules

Under s275C ITTOAI05 a person may elect to disapply the rules in ss275A and 275B (see above). The election is effective for the tax year specified and the four following tax years. The election 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.

If the person permanently ceases to carry on a property business within the period of the election, then the election will only have effect for tax years up to and including the tax year immediately before the property business ceases. The year of cessation will be subject to the normal rules, and the election will not have effect.

If a person makes a s275C election they are entitled to use the rule in s275(4) to report their profits or losses for the tax year (see PIM1010).

For example, if a person makes a s275C election on 1 January 2025 with effect from the tax year 2023/24 that election will also apply to the following four tax year (2024/25 to 2027/28). However, if their property business permanently ceases on 1 February 2027 then the election will apply only in the tax years up to 2025/26 and normal rules will apply in the tax year 2026/27.