Finance Bill

House of Commons

Session 2002 - 03
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Finance Bill

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving loss relief or partnership
109

118ZJ
Commencement: the first restricted year
(1)
This section applies where the year of assessment referred to in section
118ZE(1) is a year of assessment the basis period for which includes 10
February 2004 (“the first restricted year”).
(2)
If this section would (but for this subsection) apply in relation to more
5
than one year of assessment as respects the same individual and the
same trade, it applies only in relation to the first of those years of
assessment and “the first restricted year” means that year of
assessment.
(3)
Where this section applies, section 118ZE(2) shall have effect as if for
10
the words from “only to the extent that” there were substituted “only to
the extent that the total amount given under section 353, 380 and 381 in
respect of losses sustained by him in the trade, and interest paid by him
in connection with carrying it on, in that year of assessment does not
exceed the sum of—
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(a)
the pre-announcement allowance, and
(b)
the post-announcement allowance.”
(4)
The “pre-announcement allowance” is the sum of—
(a)
the loss (if any) sustained by the individual in the trade in the
period beginning with the start of the basis period for the first
20
restricted year and ending with 9 February 2004, and
(b)
any interest paid by him in that period in connection with the
carrying on of the trade.
(5)
The “post-announcement allowance” is so much of—
(a)
the loss (if any) sustained by the individual in the trade in the
25
period beginning with 10 February 2004 and ending with the
end of the basis period for the first restricted year, and
(b)
any interest paid by him in that period in connection with the
carrying on of the trade,

as does not exceed the individual’s contribution to the trade as at the
30
end of the year of assessment, computed in accordance with section
118ZG.
(6)
In each of subsections (4)(a) and (5)(a), the reference to the loss
sustained by the individual in the trade in the period there mentioned
is a reference to his share of any losses of the partnership arising for that
35
period from the trade, and—
(a)
subject to subsection (7), the losses of the partnership arising for
that period from the trade shall be computed in the same way
as if the period were one for which profits and losses had to be
computed for the purposes of section 111(2), and
40
(b)
subject to subsection (8), the individual’s share of the losses
shall be determined according to his interest in the partnership
during that period.
(7)
In computing for the purposes of subsection (6) the losses of the
partnership arising for the period mentioned in subsection (4)(a) or
45
(5)(a)—
(a)
any capital allowance treated as an expense of the trade for the
purposes of the computation required by section 111(2) for the
first restricted year is to be regarded as belonging to the period

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving loss relief or partnership
110

mentioned in subsection (4)(a) unless the capital expenditure to
which it relates is incurred after 9 February 2004, and
(b)
any amount deducted under section 42(1) of the Finance (No. 2)
Act 1992 for the purposes of that computation is to be regarded
as belonging to the period mentioned in subsection (4)(a) unless
5
the expenditure to which it relates is incurred after 9 February
2004.
(8)
If the individual had an interest in the partnership at any time that falls
within—
(a)
the basis period for the first restricted year, and
10
(b)
the period beginning with 10 February 2004 and ending with 25
March 2004,

he shall be deemed for the purposes of subsection (6)(b) to have had the
interest on 9 February 2004.
118ZK
Transitional provision for years after the first restricted year
15
(1)
This section applies where the year of assessment referred to in section
118ZE(1) is a year of assessment later than the first restricted year.
(2)
Section 118ZE(2) shall not apply to any part of the amount mentioned
in section 118ZE(1) that—
(a)
derives from a capital allowance treated as an expense of the
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trade where the capital expenditure to which the allowance
relates was incurred before 10 February 2004, or
(b)
derives from a deduction made under section 42(1) of the
Finance (No. 2) Act 1992 where the expenditure to which the
deduction relates was incurred before 10 February 2004.
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(3)
In computing for the purposes of section 118ZE(2)(a) or (b) the amount
given or (as the case may be) the aggregate amount, any part of an
amount given that falls within subsection (2)(a) or (b) of this section
shall be left out of account.
(4)
In computing the aggregate amount for the purposes of section
30
118ZE(2), any amount given in respect of the pre-announcement
allowance shall be left out of account.
(5)
For the purposes of subsections (2) and (3) the part of an amount that
derives from a capital allowance or a deduction made under section
42(1) of the Finance (No. 2) Act 1992 shall be determined on such basis
35
as is just and reasonable.
(6)
In this section “the first restricted year” and “the pre-announcement
allowance” have the meanings given by section 118ZJ.”
(2)
In section 117(2) of the Taxes Act 1988, in paragraph (a) of the definition of “the
aggregate amount”, after “a relevant year of assessment” there is inserted “or a
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qualifying year of assessment within the meaning of section 118ZE”.
(3)
Section 118ZB of the Taxes Act 1988 (restriction on relief: members of limited
liability partnerships) is renumbered as subsection (1) of that section and after
that provision there is added—
“(2)
However, section 117 does not apply in relation to a loss sustained by
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an individual in a trade, or interest paid by him in connection with the

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving loss relief or partnership
111

carrying on of a trade, in a qualifying year of assessment within the
meaning of section 118ZE.”
(4)
In section 118ZD of the Taxes Act 1988 (carry forward of unrelieved losses by
members of limited liability partnerships), in subsection (2), for “and 118” there
is substituted “, 118 and 118ZE”.
5
125
Partnerships exploiting films
After section 118ZK of the Taxes Act 1988 (inserted by section 124) there is
inserted—
“Partnerships exploiting films
118ZL Partnerships exploiting films
10
(1)
Where (apart from this section) an amount may be given to an
individual under section 380 or 381 in respect of a loss (“the loss in
question”) sustained by him—
(a)
in a trade consisting of or including the exploitation of films,
and
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(b)
in an affected year of assessment,

none of that amount may be given otherwise than against income
consisting of profits arising from the trade; but this is subject to
subsection (4).
(2)
An “affected year of assessment” means a year of assessment at any
20
time during which the individual carried on the trade in partnership
which is also—
(a)
the year of assessment in which the trade is first carried on by
him or any of the next three years of assessment,
(b)
a year of assessment in which he did not devote a significant
25
amount of time to the trade, and
(c)
a year of assessment at any time during which there existed a
relevant agreement guaranteeing him an amount of income.
(3)
For the purposes of subsection (2)(c)—
(a)
“a relevant agreement” means—
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(i)
an agreement that was made with a view to the
individual’s carrying on the trade or in the course of his
carrying it on (including any agreement under which he
is or may be required to contribute an amount to the
trade), or
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(ii)
an agreement related to an agreement falling within
sub-paragraph (i),
(b)
an agreement “guarantees” the individual an amount of income
if the agreement, or any part of it, is designed to secure the
receipt by the individual of that amount (or at least that
40
amount) of income, and
(c)
it is immaterial when the amount of income would be received
under the agreement.
(4)
If the loss in question derives to any extent from exempt expenditure,
amounts that (apart from this section) may be given under section 380
45
or 381 in respect of the loss otherwise than against income consisting of

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving loss relief or partnership
112

profits arising from the trade may be so given to the extent that the total
of the amounts so given does not exceed the exempt part of the loss.
(5)
The exempt part of the loss is so much of the loss in question as derives
from exempt expenditure.
(6)
Expenditure is exempt expenditure for the purposes of this section if it
5
is—
(a)
expenditure incurred before 26 March 2004 in a case where this
paragraph applies, or
(b)
expenditure that, for the purposes of the computation required
by section 111(2), was deducted under section 41 or 42 of the
10
Finance (No. 2) Act 1992, or
(c)
incidental expenditure that, although deductible apart from
section 41 or 42 of that Act, was incurred in connection with the
production or acquisition of a film in relation to which
expenditure was deducted under either of those sections.
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(7)
Subsection (6)(a) applies where the individual carried on the trade
before 26 March 2004.
118ZM Partnerships exploiting films: supplementary
(1)
In section 118ZL and this section any reference to a film is to be
construed in accordance with paragraph 1 of Schedule 1 to the Films
20
Act 1985.
(2)
Section 118ZH (meaning of “a significant amount of time” etc) applies
for the purposes of section 118ZL as it applies for the purposes of
section 118ZE.
(3)
For the purposes of section 118ZL(3) agreements are related if they are
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entered into in pursuance of the same arrangement (regardless of the
date on which either agreement is entered into).
(4)
The reference in section 118ZL(6) to the acquisition of a film is a
reference to the acquisition of the master negative or any master tape or
master disc of the film; and this subsection is to be construed in
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accordance with section 43(1) and (2)(b) of the Finance (No. 2) Act 1992.
(5)
In section 118ZL(6) “incidental expenditure” means expenditure on
management, administration or obtaining finance.
(6)
The part of the loss in question that derives from exempt expenditure
shall be determined on such basis as is just and reasonable.
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(7)
The extent to which any expenditure falls within section 118ZL(6)(c)
shall be determined on such basis as is just and reasonable.
(8)
In any case where sections 380 and 381 have effect as mentioned in
section 118ZD(2) or 118ZI(3) (cases where sections 380 and 381 have
effect as if loss carried forward from earlier year sustained in
40
subsequent year), section 118ZL also has effect as mentioned in section
118ZD(2) or (as the case may be) section 118ZI(3).”