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Individuals in partnership: exit charge |
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126 | Losses derived from exploiting licence: introductory |
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(1) | Section 127 (charge to income tax) applies in relation to an individual who |
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carries on or has carried on a trade in partnership if— |
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(a) | there is a disposal on or after 10 February 2004 of— |
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(i) | any licence acquired in carrying on the trade; or |
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(ii) | any rights to income under any agreement that is related to or |
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(b) | the individual receives any non-taxable consideration for the disposal |
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(“relevant consideration”); and |
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(c) | he has made a claim under section 380 or 381 of the Taxes Act 1988 in |
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respect of a licence-related loss sustained in the trade in a qualifying |
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year (“a relevant claim”). |
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(2) | A “licence-related loss” means a loss that derives to any extent from |
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expenditure incurred in the trade in exploiting the licence. |
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(3) | In relation to an individual who carried on the trade at any time before 26 |
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March 2004, the reference in subsection (2) to expenditure does not include |
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expenditure incurred before 10 February 2004. |
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(4) | A “qualifying year” means a year of assessment at any time during which the |
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individual carried on the trade in partnership which is also— |
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(a) | the year of assessment in which the trade is first carried on by him or |
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any of the next three years of assessment; and |
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(b) | a year of assessment in which he did not devote a significant amount of |
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time to the trade (within the meaning given by section 130). |
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(5) | The reference in subsection (1)(b) to “non-taxable” consideration is to |
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(a) | that (apart from section 127) is not chargeable to income tax; and |
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(b) | whose receipt is not an exit event for the purposes of section 119; |
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| and it is immaterial for the purposes of subsection (1)(b) whether the non- |
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taxable consideration is the only consideration received by the individual for |
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(6) | For the purposes of this section and sections 127 to 129, an agreement is related |
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to a licence if they are entered into in pursuance of the same arrangement |
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(regardless of the date on which either is entered into). |
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(7) | For the purposes of this section and sections 127 to 129 an agreement, or part |
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of an agreement, that imposes an obligation to do a thing (rather than merely |
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conferring authority to do it) is not for that reason to be regarded as not being |
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a licence; and references to “exploiting” a licence shall be construed |
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(1) | A chargeable event occurs whenever, on or after 10 February 2004, an |
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individual who carries on or has carried on a trade in partnership— |
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(a) | receives relevant consideration, if by the time he has received it he has |
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(at any time) made a relevant claim; or |
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(b) | makes a relevant claim, if by the time he has made it he has received |
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(2) | Where, as respects an individual, one or more chargeable events occurs in a |
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year of assessment in relation to a licence (“the licence in question”), so much |
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of the total consideration as does not exceed the chargeable amount shall be |
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(a) | annual profits or gains of the individual of that year of assessment; and |
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(b) | chargeable to income tax under Case VI of Schedule D. |
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(3) | The “total consideration” means the total amount or value of the relevant |
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consideration that by the end of that year of assessment has been received by |
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the individual (whether or not in that year of assessment). |
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(4) | To find the chargeable amount— |
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(a) | take so much of the total consideration as does not exceed the net- |
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licence related loss; and |
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(b) | reduce the amount found under paragraph (a) (but not below nil) by |
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the amount of any relevant consideration that by reason of this section |
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has been treated as annual profits or gains of previous years of |
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(5) | The net licence-related loss is the amount, computed as at the end of the year |
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of assessment in which the chargeable event occurs, by which A exceeds B, |
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| A is the total of the individual’s claimed licence-related losses for |
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| B is the total of his licence-related profits for any years of assessment. |
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(6) | In subsections (3) and (4), the references to relevant consideration are to |
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relevant consideration received on or after 10 February 2004 and relating to the |
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licence in question (and where relevant consideration is received for a disposal |
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of rights to income under any agreement related to or containing a licence, the |
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consideration shall be regarded for the purposes of this section as relating to |
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(7) | In this section “relevant consideration”, “relevant claim” and “qualifying year” |
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have the meanings given by section 126. |
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128 | Definitions for purposes of section 127 |
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(1) | This section applies for the purposes of section 127(5). |
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(2) | The individual’s “claimed licence-related loss” for a qualifying year is so much |
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of the loss (if any) sustained by him in the trade in that year as derives from |
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expenditure incurred in the trade in exploiting the licence in question and is |
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(a) | in respect of which he has claimed relief under section 380 or 381 of the |
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(b) | that he has claimed as an allowable loss under section 72 of the Finance |
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(3) | For the purposes of subsection (2) the part of a loss that falls within that |
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subsection shall be determined on such basis as is just and reasonable. |
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(4) | In relation to an individual who carried on the trade at any time before 26 |
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March 2004, the reference in subsection (2) to expenditure does not include |
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expenditure incurred before 10 February 2004. |
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(5) | As respects any year of assessment, the individual’s “licence-related profit” is |
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such part of his profit (if any) from the trade for that year of assessment as |
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derives from income arising from any agreement that is related to or contains |
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(6) | The part of a profit that derives from such income shall be determined on such |
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basis as is just and reasonable. |
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129 | Disposals to which section 126 applies |
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(1) | The reference in section 126(1)(a) to a disposal of such a licence or rights as are |
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there mentioned includes, in particular— |
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(a) | the revocation of the licence; |
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(b) | the disposal, giving up or loss by the individual, or by a partnership of |
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which he is a member, of any right under the licence; |
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(c) | any disposal, giving up or loss by the individual, or by a partnership of |
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which he is a member, of any right to any income (or any part of any |
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income) under an agreement that is related to or contains the licence (“a |
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licence-related agreement”); |
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(d) | any default in the payment of income to which the individual, or a |
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partnership of which he is a member, has a right under a licence-related |
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(e) | a change in the individual’s entitlement to any profits deriving to any |
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extent from such income, such that his share of the profits is reduced or |
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(f) | a change in the individual’s entitlement to any losses deriving to any |
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extent from expenditure incurred in exploiting the licence, such that he |
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becomes entitled to a share, or a greater share, of the losses without |
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becoming entitled to a corresponding share of profits; |
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(g) | the disposal, giving up or loss of the individual’s interest in a |
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partnership that has the licence or a right to income under a licence- |
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related agreement, including the dissolution of the partnership. |
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(2) | It is immaterial for the purposes of section 126(1)(a) and subsection (1)(b) and |
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(c) whether the licence or right is disposed of alone or as part of a larger |
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disposal (and the references here to disposal of a right include giving up or |
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(3) | If there is an agreement under which the individual is entitled— |
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(a) | to a particular share of any profits or losses arising in a period, and |
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(b) | to a different share of any profits or losses arising in a succeeding |
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period (“the later period”), |
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| his entitlement to the profits or losses arising in the later period shall be treated |
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for the purposes of subsection (1)(e) and (f) as changing at the beginning of the |
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later period; and in paragraph (a) and (b) of this subsection a “share” of profits |
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or losses includes a nil share. |
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130 | “A significant amount of time” |
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(1) | For the purposes of section 126(4)(b) the individual shall be treated as having |
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“devoted a significant amount of time to the trade” in a given year of |
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assessment if, for the whole of the relevant period, he spent an average of at |
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least ten hours a week personally engaged in activities carried on for the |
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(2) | “The relevant period” means the basis period for the year of assessment in |
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(a) | if the basis period is less than six months and begins with the date when |
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the individual first carried on the trade, “the relevant period” means six |
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months beginning with that date; and |
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(b) | if the basis period is less than six months and ends with the date when |
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the individual ceased to carry on the trade, “the relevant period” means |
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six months ending with that date. |
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(3) | In this section “basis period” means (subject to subsection (4)) the basis period |
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given by sections 60 to 63 of the Taxes Act 1988 as applied by section 111(4) and |
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(4) | The basis period for a year of assessment to which section 61(1) of that Act |
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applies is to be taken for the purposes of this section to be the period beginning |
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with the date when the individual first carried on the trade and ending with |
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the end of the year of assessment. |
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131 | Companies in partnership |
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(1) | This section applies if— |
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(a) | on or after 17 March 2004, a company that is or has been a member of a |
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(i) | directly or indirectly draws out or receives back any capital |
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(ii) | receives consideration for a disposal on or after 17 March 2004 |
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of all or any of its interest in the partnership; |
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(b) | as at the relevant time, the sum of— |
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(i) | the total amount of any relevant withdrawals, and |
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(ii) | the total amount or value of any relevant consideration, |
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| exceeds the company’s contribution to the partnership; |
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(c) | that excess (or any part of it) results directly or indirectly from an |
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arrangement under which any relevant profit was shared in such a way |
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that the company was not allocated all or part of its due share of the |
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(d) | if the company’s due shares of relevant profits had been allocated to the |
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company, some or all of them would have been chargeable to |
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(2) | For the purposes of this section— |
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(a) | “the relevant time” means the time immediately after the capital is |
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drawn out or received back or (as the case may be) the consideration is |
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(b) | a “relevant withdrawal” means any capital that the company has, |
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directly or indirectly, drawn out or received back from the partnership |
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at any time on or after 17 March 2004; |
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(c) | “relevant consideration” means consideration received by the company |
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at any time on or after 17 March 2004 for the disposal on or after that |
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date of all or any of its interest in the partnership; |
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(d) | “the company’s contribution to the partnership” means the sum of— |
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(i) | the amount that it has contributed to the partnership as capital |
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(excluding any amount originally contributed by a person from |
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whom the company acquired an interest in the partnership); |
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(ii) | any amount paid by the company to such a person for such an |
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(e) | a “relevant profit” is the profit of the partnership computed for any |
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period, but does not include any profit, or any part of a profit, that |
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derives from income arising before 17th March 2004; |
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(f) | the company’s “due share” of any relevant profit is the share of the |
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profit that the company would have been allocated if it had been |
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allocated a share calculated by reference to the percentage of the total |
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capital contributed (as defined by subsection (3)) that was contributed |
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(3) | To find “the total capital contributed” for the purposes of subsection (2)(f)— |
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(a) | find, as respects the end of each day in the period for which the profit |
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was computed, the total amount of capital that as at that time had been |
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contributed to the partnership and had not been drawn out or received |
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(b) | aggregate those amounts; and |
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(c) | divide by the number of days in that period. |
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(4) | Where this section applies, the company shall be treated as receiving, at the |
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relevant time, annual profits or gains which are of an amount equal to the |
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chargeable amount and chargeable to tax under Case VI of Schedule D. |
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(5) | The chargeable amount is (subject to subsections (6) and (7)) so much of A as |
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does not exceed B, where— |
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| A is the amount by which, at the relevant time, the sum of the total |
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amount of any relevant withdrawals and the total amount or value of |
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any relevant consideration exceeds the company’s contribution to the |
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| B is the amount by which, at the relevant time, the total amount of the |
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company’s due shares of relevant profits exceeds the total amount of |
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the shares of relevant profits that were actually allocated to the |
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(6) | Subsection (7) applies if this section applies on more than one occasion in |
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relation to the same company and partnership (whether because of two or |
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more receipts by the company of consideration relating to the same disposal or |
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(7) | On each occasion after the first, the amount found under subsection (5) shall be |
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reduced (but not below nil) by the total of the chargeable amounts found |
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(under that subsection read with this) on the previous occasions. |
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