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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Cemeteries and crematoria: tax treatment of capital receipts and expenditure

S169-S172 Income Tax (Trading and Other Income) Act 2005, S146-S149 Corporation Tax Act 2009

Consideration from selling graves in cemeteries or memorial garden plots in the grounds of a crematorium is trading income for tax purposes despite the fact that land is a capital asset. For guidance on the treatment of lump sums received for maintaining graves, see BIM52505.

In computing the trading profits of any period, you should allow a deduction for:

  1. capital expenditure incurred by the trader (or a predecessor) on the purchase and preparation of land which is sold for the purpose of internments and memorial garden plots
  2. ancillary capital expenditure allocated to that period (see below)

Deduction for ancillary expenditure

Only the amount of ancillary capital expenditure allocated to the period can be deducted as a trading expense.

First, it is important to determine the ancillary capital expenditure and then to calculate how much can be allocated to the period.

Ancillary capital expenditure means expenditure incurred for the purposes of the trade on:

  • buildings and structures in the cemetery/memorial garden (for example chapels, boundary walls, carriageways, etc, but excluding dwelling houses).
  • the purchase or preparation (e.g. levelling or draining) of land taken up by such buildings and structures, and
  • the purchase or preparation of other land in the cemetery unsuitable for graves (for example, land used for paths, flower beds and shrubbery).

Buildings/structures and land not suitable for grave spaces qualify for relief only if they are likely to have little or no value when the cemetery/memorial garden is full. Thus a chapel or a carriage way used both for the cemetery and for an adjoining crematorium would not ordinarily qualify.

The amount of the ancillary capital expenditure allocated to the period (i.e. the amount of the trading deduction) is calculated using the following formula:

RE x PSR divided by PAR + PSR

Where:

RE is the residual expenditure (see below)

PSR is grave spaces/memorial plots sold in the period

PAR is grave spaces/memorial plots which are (or could be made) available for sale at the end of the period

The residual expenditure is the amount of ancillary capital expenditure incurred at any time before the end of the period under consideration less:

  • the total of any ancillary capital expenditure which has been deducted in earlier periods,
  • the net sale proceeds or compensation received for any asset sold or destroyed since the commencement of the first period in which an interest in land was sold for the purposes of the trade (or the basis period for 1954/55 if that is later),
  • any ancillary capital expenditure incurred on buildings and structures destroyed before the commencement of the first period in which an interest in land was sold for the purposes of the trade (or the basis period for 1954/55 if that is later), and
  • the excluded amount of any old ancillary capital expenditure.

The excluded amount of any old ancillary capital expenditure is calculated using the following formula:

Remaining old ancillary capital expenditure x PSB divided by PAB + PSB

Where:

PSB is grave spaces/memorial plots sold before the beginning of the 1954/55 basis period

PAB is graves spaces/memorial plots which are (or could be made) available for sale before the beginning of the basis period for that tax year

Excluded expenditure

Expenditure cannot be deducted twice as both capital expenditure ((1) in the list at the top of this page) and ancillary capital expenditure ((2) in the list).

Expenditure paid by the purchaser when there is a change in the person carrying on the trade does not qualify for a deduction under these rules. This is because it is always the original amount of the expenditure that is deducted (even if a predecessor incurred it), and so the purchase price paid by a successor is ignored.

No deduction is available if the expenditure has been met by:

  • the Crown
  • the Government (whether in the UK or elsewhere)
  • a local authority (whether in the UK or elsewhere)
  • a public authority (whether in the UK or elsewhere)
  • any person other than the person incurring the expenditure (but only where that person has received a trading deduction for the expenditure - if that person has not received a trading deduction the expenditure is not excluded)

This restriction does not prevent a deduction for expenditure which has been met by insurance proceeds or compensation money in respect of an asset which has been destroyed or demolished. See BIM40751 and BIM40755 for the tax treatment in respect of insurance receipts.

Note that expenditure is not excluded if it is met directly or indirectly by a grant under Northern Irish legislation and that grant corresponds to a grant made under Part 2 Industrial Development Act 1982.