What happens to the sea walls deduction under section 315 when the property is transferred during the 21-year period?

Under section 316 of ITTOIA 2005, when a person transfers their interest in the premises during the 21-year deduction period, the annual sea walls expenditure deduction is shared between the transferor and transferee in the year of transfer on a just and reasonable basis, typically reflecting the time each party held the property.

How is the sea walls deduction split in the tax year of transfer under section 316?

In the tax year of transfer, both the transferor and transferee share the annual deduction on a just and reasonable basis. This typically means a time-based apportionment reflecting how much of the year each party held the interest in the premises. The transfer can occur by sale, succession, or any other operation of law.

What happens to the deduction in subsequent years if only part of the property is transferred?

If only part of the premises is transferred, both the transferor and transferee continue to receive a portion of the annual deduction in subsequent years. The amount each party receives is determined by what is properly referable to their respective part of the premises, ensuring the transferor retains entitlement for the part they still hold.

Which related provisions supplement section 316 of ITTOIA 2005?

Section 316 is supplemented by section 317, which covers situations where a lease of the premises comes to an end, and section 318, which deals with transfers involving a company within the charge to corporation tax. These provisions should be considered alongside section 316 where a transfer of interest in premises occurs.

Income Tax (Trading and Other Income) Act 2005 section 316

Transfer of interest in premises

Section 316 deals with what happens to the sea walls expenditure deduction (spread over 21 years under section 315) when the person who incurred the expenditure transfers their interest in the premises, or part of the premises, during the deduction period.

In the tax year of transfer, both the transferor and transferee share the annual deduction on a just and reasonable basis.
If the whole property interest is transferred, only the transferee receives the deduction in subsequent tax years.
If only part of the property interest is transferred, both parties continue to receive a share of the deduction in subsequent years based on what is properly referable to their respective parts of the premises.
Further rules apply where a lease ends (section 317) or where the transfer involves a company within the charge to corporation tax (section 318).

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