Explanatory note

Section 312 of the Income Tax (Trading and Other Income) Act 2005 (c. 5) provides that the Treasury may make regulations to specify descriptions of energy-saving items in respect of which expenditure may be deducted by residential landlords who pay income tax when calculating the profits of their property business. Section 314 provides that the Treasury may make regulations providing for the apportionment and restriction of the amount of such deduction. These Regulations exercise the powers conferred by those sections.

Regulation 1 deals with citation, commencement and interpretation.

Regulation 2 specifies hot water system insulation, draught proofing, solid wall insulation and floor insulation as items of an energy-saving nature.

Regulation 3 restricts the maximum amount of expenditure for which a deduction is to be allowed to £1,500 per dwelling-house and excludes contributions by persons not entitled to a deduction. This regulation also provides that further rules concerning expenditure are set out in regulations 4 to 6.

Regulation 4 provides for a just and reasonable apportionment where relevant expenditure benefits more than one property.

Regulation 5 restricts relevant expenditure (including expenditure apportioned under regulation 4) to the maximum amount.

Regulation 6 provides for a just and reasonable apportionment where a dwelling-house or the building containing it is owned jointly or in common or is subject to differing estates or interests.

Regulation 7 provides an appeal mechanism where there is a dispute on a matter covered by one of regulations 3(3) or 4 to 6.

Regulation 8 revokes previous regulations which have dealt with the treatment of items of an energy-saving nature.

A full regulatory impact assessment has not been produced for this instrument as no impact on the private or voluntary sectors is foreseen.