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Finance (No. 2) BillPage 430

850E Payments by B out of the excess part of B’s profit share

(1) Subsection (2) applies in a case in which section 850C(4) or section
850D(4) applies if—

(a) there is an agreement in place in relation to the excess part of
5B’s profit share,

(b) as a result of the agreement, B makes a payment to another
person out of the excess part of B’s profit share, and

(c) the payment is not made under any arrangements the main
purpose, or one of the main purposes, of which is the
10obtaining of a tax advantage for any person.

(2) For income tax purposes, the payment—

(a) is not to be income of the recipient,

(b) is not to be taken into account in calculating any profits or
losses of B or otherwise deducted from any income of B, and

(c) 15is not to be regarded as a distribution.

(3) In this section—

8 (1) 30Chapter 3 of Part 4 of ITA 2007 (trade loss relief: restrictions for certain
partners) is amended as follows.

(2) In section 102 (overview of Chapter) after subsection (2) insert—

(2A) This Chapter also provides for no relief to be given for a loss made
by an individual in a trade carried on by the individual as a partner
35in a firm in certain cases where some or all of the loss is allocated to
the individual rather than a person who is not an individual (see
section 116A).

(3) At the end insert—

Partnerships with mixed membership etc
116A 40 Excess loss allocation to partners who are individuals

(1) Subsection (2) applies if—

(a) in a tax year, an individual (“A”) makes a loss in a trade as a
partner in a firm, and

(b) A’s loss arises, wholly or partly—

(i) 45directly or indirectly in consequence of, or

Finance (No. 2) BillPage 431

(ii) otherwise in connection with,

relevant tax avoidance arrangements.

(2) No relevant loss relief may be given to A for A’s loss.

(3) In subsection (1)(b) “relevant tax avoidance arrangements” means
5arrangements—

(a) to which A is party, and

(b) the main purpose, or one of the main purposes, of which is to
secure that losses of a trade are allocated, or otherwise arise,
in whole or in part to A, rather than a person who is not an
10individual, with a view to A obtaining relevant loss relief.

(4) In subsection (3)(b) references to A include references to A and other
individuals.

(5) For the purposes of subsection (3)(b) it does not matter if the person
who is not an individual is not a partner in the firm or is unknown or
15does not exist.

(6) In this section—

(7) This section applies to professions as it applies to trades.

9 (1) Chapter 4 of Part 4 of ITA 2007 (losses from property businesses) is amended
as follows.

(2) In section 117 (overview of Chapter) in subsection (3) for “and 127B”
30substitute “to 127C”.

(3) After section 127B insert—

127C Excess loss allocation to partners who are individuals

(1) Subsection (2) applies if—

(a) in a tax year, an individual (“A”) makes a loss in a UK
35property business or an overseas property business as a
partner in a firm, and

(b) A’s loss arises, wholly or partly—

(i) directly or indirectly in consequence of, or

(ii) otherwise in connection with,

40relevant tax avoidance arrangements.

(2) No relevant loss relief may be given to A for A’s loss.

(3) In subsection (1)(b) “relevant tax avoidance arrangements” means
arrangements—

(a) to which A is party, and

Finance (No. 2) BillPage 432

(b) the main purpose, or one of the main purposes, of which is to
secure that losses of a UK property business or an overseas
property business are allocated, or otherwise arise, in whole
or in part to A, rather than a person who is not an individual,
5with a view to A obtaining relevant loss relief.

(4) In subsection (3)(b) references to A include references to A and other
individuals.

(5) For the purposes of subsection (3)(b) it does not matter if the person
who is not an individual is not a partner in the firm or is unknown or
10does not exist.

(6) In this section—

10 (1) Part 17 of CTA 2009 (partnerships) is amended as follows.

(2) In section 1262 (allocation of firm’s profits and losses between partners) in
20subsection (1) for “and 1264” substitute “to 1264A”.

(3) After section 1264 insert—

1264A Excess profit allocation to non-individual partners etc

(1) Subsection (2) applies in a case in which—

(a) section 850C(4) or 850D(4) of ITTOIA 2005 applies for a
25period of account (“the relevant period of account”), and

(b) the partner who is “B” for the purposes of section 850C or
850D of that Act (as the case may be) is a company.

(2) In applying sections 1262 to 1264 in relation to the company—

(a) for the accounting period of the firm which coincides with
30the relevant period of account, or

(b) if no accounting period of the firm coincides with the relevant
period of account, for accounting periods of the firm in which
the relevant period of account falls,

such adjustments are to be made as are just and reasonable to take
35account of the increase under section 850C(4) of ITTOIA 2005 or A’s
share of the firm’s profit under section 850D(4) of that Act.

(3) Sections 850C(23) and 850E(2) of ITTOIA 2005 apply for corporation
tax purposes as they apply for income tax purposes.

Commencement

11 (1) 40Subject to sub-paragraph (2), the amendments made by paragraphs 7 and 10
are treated as having come into force on 5 December 2013 and have effect in
accordance with paragraphs 12 and 13.

(2) Section 850C(8)(b), (18)(b) and (19) of ITTOIA 2005 is treated as having come
into force on 6 April 2014.

Finance (No. 2) BillPage 433

12 (1) Section 850C of ITTOIA 2005 has effect for periods of account beginning on
or after 6 April 2014 (and section 850E of ITTOIA 2005 and section 1264A of
CTA 2009 have effect accordingly).

(2) Sub-paragraphs (3) and (4) apply in relation to a firm where a period of
5account (“the straddling period”) begins before 6 April 2014 but ends on or
after that date.

(3) Assume that the part of the straddling period falling on or after 6 April 2014
is a separate period of account.

(4) If section 850C(4) of ITTOIA 2005 would apply in relation to one or more
10partners in the firm for the assumed separate period of account, Part 9 of that
Act has effect as if that part of the straddling period were a separate period
of account.

13 (1) Section 850D of ITTOIA 2005 has effect for periods of account beginning on
or after 6 April 2014 (and section 850E of ITTOIA 2005 and section 1264A of
15CTA 2009 have effect accordingly).

(2) Sub-paragraphs (3) and (4) apply in relation to a firm where a period of
account (“the straddling period”) begins before 6 April 2014 but ends on or
after that date.

(3) Assume that the part of the straddling period falling on or after 6 April 2014
20is a separate period of account.

(4) If section 850D(4) of ITTOIA 2005 would apply in relation to one or more
individuals for the assumed separate period of account, Part 9 of that Act has
effect as if that part of the straddling period were a separate period of
account.

14 (1) 25The amendments made by paragraphs 8 and 9 have effect in relation to
losses made in the tax year 2014-15 and subsequent tax years.

(2) Sub-paragraphs (3) and (4) apply for the purposes of section 116A or 127C
of ITA 2007 if a loss made by an individual as a partner in a firm arises in a
period of account (“the straddling period”) which begins before 6 April 2014
30but ends on or after that date.

(3) The loss is to be apportioned between the part of the straddling period
falling before 6 April 2014 and the part falling on or after that date—

(a) on a time basis according to the respective lengths of those parts of
the straddling period, or

(b) 35if that method produces a result that is unjust or unreasonable, on a
just and reasonable basis.

(4) Section 116A or 127C of ITA 2007 does not apply in relation to the loss so far
as it is apportioned to the part of the straddling period falling before 6 April
2014.

Finance (No. 2) BillPage 434

Part 3 Alternative investment fund managers: deferred remuneration etc

Main provision

15 At the end of Part 9 of ITTOIA 2005 (partnerships) insert—

5Alternative investment fund managers
863H Election for special provision for alternative investment fund
managers to apply

(1) Section 863I applies in relation to an AIFM trade of an AIFM firm if
the AIFM firm elects for that section to apply.

(2) 10An election under this section must be made within 6 months after
the end of the first period of account for which the election is to have
effect.

(3) An “AIFM firm” is a firm—

(a) the regular business of which is managing one or more AIFs,
15or

(b) which carries out one or more functions of managing one or
more AIFs—

(i) as the delegate of, or

(ii) as the sub-delegate of a delegate of,

20a person whose regular business is managing one or more
AIFs.

(4) An “AIFM trade” is a trade of an AIFM firm which involves the
firm’s activities mentioned in subsection (3)(a) or (b).

(5) Subsection (3)(a) and (b) is to be construed as if it were contained in
25regulation 4 of the Alternative Investment Fund Managers
Regulations 2013 (S.I. 2013/1773).

863I Allocation of profit to the AIFM firm

(1) This section applies for a period of account of the AIFM trade if—

(a) the calculation under section 849 in relation to a partner (“P”)
30in the AIFM firm produces a profit, and

(b) P’s share of that profit determined under section 850, 850A or
850C would, apart from this section, be a profit consisting
(wholly or partly) of relevant restricted profit (see
subsections (6) to (9)) chargeable to income tax under
35Chapter 2 of Part 2.

(2) P may allocate all or a part of the relevant restricted profit (“the
allocated profit”) to the AIFM firm itself.

(3) If P does so—

(a) the allocated profit is to be excluded from P’s share of the
40AIFM firm’s profit mentioned in subsection (1)(b),

(b) the AIFM firm is to be treated in accordance with subsection
(4) as if it were itself a person who is a partner in the AIFM

Finance (No. 2) BillPage 435

firm (and for this purpose, in the case of a limited liability
partnership, it is the body corporate which is to be treated as
that person), and

(c) all enactments applying generally to income tax are to apply
accordingly with any necessary modifications (subject to
5subsection (5)).

(4) The AIFM firm is treated on the following basis—

(a) the calculation under section 849 in relation to the AIFM firm
for the period of account produces the profit mentioned in
subsection (1)(a),

(b) 10the AIFM firm’s share of that profit determined under section
850 is the allocated profit (and sections 850A and 850C are to
be ignored),

(c) that share is chargeable to tax under Chapter 2 of Part 2 for
the tax year in which the period of account ends (with the
15person liable for the tax charged being the AIFM firm), and

(d) the tax is charged at the additional rate.

(5) The Commissioners for Her Majesty’s Revenue and Customs may
make regulations modifying any of the following enactments
applying to income tax as they apply by virtue of this section in
20relation to the AIFM firm—

(a) those relating to returns of information and supply of
accounts, statements and reports,

(b) those relating to the assessing, collecting and receiving of
income tax,

(c) 25those conferring or regulating a right of appeal, and

(d) those concerning administration, penalties, interest on
unpaid tax and priority of tax in cases of insolvency under the
law of any part of the United Kingdom.

(6) P’s profit determined under section 850, 850A or 850C is “relevant
30restricted profit” so far as it represents variable remuneration
awarded to P—

(a) as deferred remuneration (including deferred remuneration
which, if it vests in P, will vest in the form of instruments), or

(b) as upfront remuneration which vests in P in the form of
35instruments with a retention period of at least 6 months.

(7) In order for any variable remuneration to count for the purposes of
subsection (6) it must be awarded to P in accordance with
arrangements which are consistent with the AIFMD remuneration
guidelines (see section 863L).

(8) 40In the case of a firm which is an AIFM firm by virtue of section
863H(3)(b) only, this section applies only in relation to partners who
fall within a category of staff which is classified as identified staff.

(9) Terms used in subsections (6) to (8) have the same meaning as in the
AIFMD remuneration guidelines.

863J 45 Vesting of remuneration represented by the allocated profit

(1) Subsection (2) applies if all or a part of the variable remuneration
represented by the allocated profit vests in P at a time when P is

Finance (No. 2) BillPage 436

carrying on the AIFM trade (whether as a partner in the AIFM firm
or otherwise).

(2) The amount given by subsection (5) is treated as a profit of the
relevant tax year (see subsection (7)) made by P in the AIFM trade
chargeable to income tax under Chapter 2 of Part 2.

(3) 5Subsection (4) applies if all or a part of the variable remuneration
represented by the allocated profit vests in P at a time when P is no
longer carrying on the AIFM trade (whether as a partner in the AIFM
firm or otherwise).

(4) If this subsection applies—

(a) 10P is treated as receiving, in the relevant tax year (see
subsection (7)), income of the amount given by subsection (5),

(b) income tax is charged under this subsection on that income,
and

(c) P is the person liable for that tax.

(5) 15The amount to be treated as a profit or as income received by P is—

(a) the amount of the allocated profit, or the part of it
representing the part of the variable remuneration, net of the
income tax for which the AIFM firm is liable by virtue of
section 863I in respect of the allocated profit or the part of it,
20plus

(b) an amount equal to—

(i) so much of the income tax mentioned in paragraph (a)
as is paid by the AIFM firm by the time the vesting
occurs, or

(ii) 25if the vesting occurs in the tax year for which the
allocated profit is chargeable to tax under Chapter 2
of Part 2 by virtue of section 863I, so much of the
income tax mentioned in paragraph (a) as is paid by
the AIFM firm.

(6) 30Further—

(a) P is treated as paying, when the vesting occurs, an amount of
income tax equal to the amount given by subsection (5)(b),
and

(b) that amount is accordingly to be taken into account in
35determining the income tax payable by, or repayable to, P.

(7) “The relevant tax year” is—

(a) if the variable remuneration or the part of it is deferred
remuneration, the tax year in which the vesting occurs, or

(b) if the variable remuneration or the part of it is upfront
40remuneration, the tax year for which the allocated profit
would have been chargeable to income tax under Chapter 2
of Part 2 as mentioned in section 863I(1)(b).

(8) Terms used in this section have the same meaning as in the AIFMD
remuneration guidelines (see section 863L).

(9) 45Section 850E (payment from B to other persons after application of
section 850C(4) or 850D(4)) is to be ignored for the purposes of this
section.

Finance (No. 2) BillPage 437

863K Vesting statements

(1) This section applies if all or a part of the variable remuneration
represented by the allocated profit vests in P.

(2) If P requests it in writing, the AIFM firm must provide P with a
5statement showing—

(a) the amount of the allocated profit, or the part of it
representing the part of the variable remuneration, gross of
the income tax for which the AIFM firm is liable by virtue of
section 863I in respect of the allocated profit or the part of it,

(b) 10the amount of the income tax for which the AIFM firm is
liable, and

(c) so much of that amount of income tax as is paid by the AIFM
firm by the time the vesting occurs or, if section 863J(5)(b)(ii)
applies, as is paid by the AIFM firm.

(3) 15The duty to comply with a request under this section is enforceable
by P.

(4) In the case of a limited liability partnership, the duty is enforceable
against the body corporate.

863L The AIFMD remuneration guidelines

20In sections 863I to 863K “the AIFMD remuneration guidelines”
means the “Guidelines on Sound Remuneration Policies under the
AIFMD” issued by the European Securities and Markets Authority
on 3 July 2013 (ESMA/2013/232).

Supplementary provision

16 (1) 25TMA 1970 is amended as follows.

(2) In Part 2 (returns of income and gains) after section 12AD insert—

12ADA AIFM firms

(1) An officer of Revenue and Customs may by notice require a
partnership which has made an election under section 863H of
30ITTOIA 2005 (whether or not the election has been revoked) to
provide the officer with such information as the officer may
reasonably require for purposes connected with the operation of
sections 863H to 863K of ITTOIA 2005.

(2) The information must be provided within such reasonable time as
35the officer may specify in the notice.

(3) In column 2 of the Table in section 98 (special returns etc), at the appropriate
place, insert “section 12ADA of this Act”.

17 In Part 3 of TCGA 1992 (which makes special provision about partnerships
etc) after section 59A insert—

59B 40 Alternative investment fund managers (1)

(1) Subsection (2) applies if—

(a) under section 863I of ITTOIA 2005, a partner (“P”) in a
partnership allocates to the partnership an amount of profit

Finance (No. 2) BillPage 438

(“the allocated profit”) representing variable remuneration
which, if it vests in P, will vest in the form of instruments,

(b) there is a disposal to P of instruments which are partnership
assets of the partnership for the purposes of section 59, and

(c) by virtue of that disposal the variable remuneration vests in
5P.

(2) Both the persons making the disposal and P are to be treated as if the
instruments were acquired by P from those persons for a
consideration of an amount equal to the allocated profit net of the
income tax for which the partnership is liable by virtue of section
10863I of ITTOIA 2005 in respect of the allocated profit.

(3) Terms used in this section which are also used in section 863I or 863J
of ITTOIA 2005 have the same meaning as in that section.

59C Alternative investment managers (2)

(1) Subsection (2) applies if—

(a) 15under section 863I of ITTOIA 2005, a partner (“P”) in a
partnership allocates to the partnership an amount of profit
(“the allocated profit”) representing variable remuneration
which, if it vests in P, will vest in the form of instruments,

(b) there is a disposal to P of instruments by a company which is
20a partner in the partnership,

(c) by virtue of that disposal the variable remuneration vests in
P, and

(d) the company would, as a partner in the partnership, have
been charged to tax on the allocated profit but for
25adjustments made in the case of the company under section
1264A(2) of CTA 2009 or section 850C(5) of ITTOIA 2005.

(2) Both the company and P are to be treated as if the instruments were
acquired by P from the company for a consideration of an amount
equal to the allocated profit net of the income tax for which the
30partnership is liable by virtue of section 863I of ITTOIA 2005 in
respect of the allocated profit.

(3) Terms used in this section which are also used in section 863I or 863J
of ITTOIA 2005 have the same meaning as in that section.

18 In Part 4 of FA 2004 (pensions) in section 189 (relevant UK individual) after
35subsection (2A) insert—

(2B) The income covered by subsection (2)(b) includes—

(a) an amount treated as a profit under section 863J(2) of ITTOIA
2005, and

(b) income treated as received under section 863J(4) of that Act.

19 40In section 23 of ITA 2007 (calculation of income tax liability) at the end of
Step 4 insert—

See also section 863I of ITTOIA 2005 which provides for certain
partnership profits to be charged at the additional rate.

Finance (No. 2) BillPage 439

Power to apply amendments to other types of firms carrying on regulated activities

20 (1) The Commissioners for Her Majesty’s Revenue and Customs may by
regulations amend any Act—

(a) so as to apply (with or without modifications), in relation to
5regulated firms of a specified description, the provision made by the
amendments made by this Part, or

(b) so as to make, in relation to regulated firms of a specified description,
provision corresponding to the provision made by the amendments
made by this Part.

(2) 10“Regulated firm” means a firm carrying on a regulated activity within the
meaning of the Financial Services and Markets Act 2000 (see section 22 of
that Act); and “firm” has the same meaning as in ITTOIA 2005 (see section
847 of that Act) (and includes a limited liability partnership in relation to
which section 863(1) of that Act applies).

(3) 15Regulations under this paragraph may—

(a) make different provision for different cases or different purposes;

(b) make incidental, consequential, supplementary and transitional
provision and savings.

Commencement

21 20The amendments made by this Part have effect for the tax year 2014-15 and
subsequent tax years.

Part 4 Disposals of assets through partnerships

Income tax

22 25Part 13 of ITA 2007 (tax avoidance) is amended as follows.

23 (1) In Chapter 5A (transfers of income streams) section 809AZF (partnership
shares) is amended as follows.

(2) In subsection (1) omit “if condition A or B is met”.

(3) Omit subsections (2) and (3).

(4) 30The amendments made by this paragraph have effect for cases where the
transfer of a right to relevant receipts occurs on or after 6 April 2014.

24 (1) After Chapter 5A insert—

Chapter 5AA

Disposals of income streams through partnerships

809AAZA Application of Chapter

(1) This Chapter applies (subject to subsection (2)) if directly or
35indirectly in consequence of, or otherwise in connection with,
arrangements involving a person within the charge to income tax
(“the transferor”) and another person (“the transferee”)—

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Contents page 330-339 340-349 350-359 360-369 370-379 380-389 390-399 400-409 410-419 420-429 430-439 440-449 450-459 460-469 470-479 480-489 490-499 500-509 510-519 520-529 530-539 Last page