House of Commons Session 2004 - 05 Internet Publications Other Bills before Parliament

 Finance Bill

 Finance BillPart 3 — Income tax, corporation tax and capital gains taxChapter 8 — Film relief
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 94 Valuation of the “rights to guaranteed income” and “disposed rights”
 (1) For the purposes of section 91, the value immediately before the exit event of
 the rights to guaranteed income under the guaranteed income agreement is
 calculated as follows—

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 Step 1
 Find the amount of each payment of income which at that time the guaranteed
 income agreement is designed to secure is received by C but which at that time
 has not been brought into account for the relevant trade by C (“RI”).
 Step 2

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 For each payment find the day for payment which the agreement is designed
 to secure (“the payment day”).
 Step 3
 For each payment find the number of days in the period (“P”) which—
 (a) begins with the day on which the exit event occurs, and

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 (b) ends with the payment day.
 Step 4
 Calculate the net present value of each payment (“NPVRI”) by applying the
 following formula—
 where—

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 T is the temporal discount rate, and
 i is the number of days in P divided by 365.
 Step 5
 Add together each amount of NPVRI determined under step 4.
 (2) For the purposes of section 92, in relation to a relevant disposal, the value of

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 the disposed rights immediately before the disposal is calculated as follows—
 Step 1
 Find the amount of each payment of income which at that time the guaranteed
 income agreement is designed to secure is received by C by virtue of the

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 disposed rights but which at that time has not been brought into account for
 the relevant trade by C (“DI”).
 Step 2
 For each payment find the day for payment which the agreement is designed
 to secure (“the payment day”).

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 Step 3
 For each payment find the number of days in the period (“P”) which—
 (a) begins with the day on which the relevant disposal occurs, and
 (b) ends with the payment day.
 Step 4

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 Calculate the net present value of each payment (“NPVDI”) by applying the
 following formula—
 where—
 T is the temporal discount rate, and

 Finance BillPart 3 — Income tax, corporation tax and capital gains taxChapter 9 — Avoidance involving partnership
 71

 i is the number of days in P divided by 365.
 Step 5
 Add together each amount of NPVDI determined under step 4.
 (3) For the purposes of this section the “temporal discount rate” is 3.5% or such
 other rate as may be specified by regulations made by the Treasury.

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 (4) Regulations under subsection (3) may make such provision as is mentioned in
 subsection (3)(b) to (f) of section 178 of FA 1989 (power of Treasury to set rates
 of interest).
 (5) Subsection (5) of that section (power of Inland Revenue to specify rate by order
 in certain circumstances) applies in relation to regulations under subsection (3)

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 as it applies in relation to regulations under that section.
 (6) This section is deemed to have come into force on 2nd December 2004.
 95 Meaning of “company” and related terms
 (1) For the purposes of sections 90 to 94, two companies are deemed to be
 members of a group of companies if—

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 (a) one is the 75% subsidiary of the other, or
 (b) both are 75% subsidiaries of a third company.
 (2) For those purposes, the “principal company” of a group of companies means a
 company—
 (a) which is not a 75% subsidiary of another company to whom group

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 relief would be available under section 402 of ICTA if it were to make a
 group claim under that section in respect of any trading losses
 surrendered by C, and
 (b) to whom group relief would be available under section 402 of ICTA if
 it were to make a group claim under that section in respect of any

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 (3) For the purposes of sections 90 to 94 and this section—
 (a) a company is to be treated as a 75% subsidiary of another company if it
 would be such a subsidiary of that company for the purposes of section
 402 of ICTA (surrender of relief between members of group), and

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 (b) “company” has the same meaning as it has for the purposes of that
 section.
 (4) This section is deemed to have come into force on 2nd December 2004.
 Chapter 9
 Avoidance involving partnership

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 Partners: restrictions on relief
 96 Removal of restrictions on interest relief
 (1) In section 117 of ICTA (restriction on interest relief and loss relief for limited
 partners)—
 (a) in subsection (1)—

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 Finance BillPart 3 — Income tax, corporation tax and capital gains taxChapter 9 — Avoidance involving partnership
 72

 (i) omit “353,”, and
 (ii) in paragraph (a) omit “, or of interest paid by him in connection
 with the carrying on of a trade,”,
 (b) in subsection (2), in the definition of “the aggregate amount”—
 (i) omit “353,”, and

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 (ii) in paragraph (a) omit “, or of interest paid by him in connection
 with carrying it on,”, and
 (c) in that subsection, in the definition of “the appropriate time” omit “or
 the interest paid”.
 (2) In section 118ZB of that Act (limited liability partnerships: restriction on relief),

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 in subsection (2) omit “, or interest paid by him in connection with the carrying
 (3) In section 118ZE of that Act (restriction on relief for non-active partners), in
 subsection (1) omit “353,” and “, or interest paid by him in connection with the

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 (4) In section 118ZF of that Act (meaning of “the aggregate amount”), in
 subsection (1) omit “353,” and “, or of interest paid by him in connection with
 carrying it on,”.
 (5) In section 118ZG of that Act (meaning of “the individual’s contribution to the
 trade”), in subsection (2)(b)(ii) omit “353,” and “, or of interest paid by him in

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 connection with carrying it on,”.
 (6) In section 118ZJ of that Act (commencement: the first restricted year)—
 (a) in subsection (3) omit “353,” and “, and interest paid by him in
 connection with carrying it on,”,
 (b) in subsection (4)—

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 (i) omit “the sum of”, and
 (ii) omit paragraph (b) and the word “and” immediately before it,
 and
 (c) in subsection (5) omit paragraph (b) and the word “and” immediately
 before it.

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 (7) The amendments made by this section have effect in relation to the application
 of section 117 of ICTA (including that section as applied by section 118ZB of
 that Act) and section 118ZE of that Act in relation to—
 (a) any loss sustained by an individual in a trade, or interest paid by him
 in connection with the carrying on of a trade, in a year of assessment the

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 basis period for which begins on or after 2nd December 2004, and
 (b) any post-announcement loss sustained by an individual in a trade, and
 any post-announcement interest paid by him in connection with the
 (8) For the purposes of this section—

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 “basis period” means the basis period given by Chapter 15 of Part 2 of
 ITTOIA 2005, as applied by section 853 of that Act, except that the basis
 period for a year of assessment to which section 199(1) of that Act
 applies is to be taken to be the period beginning with the date when the
 individual first carried on the trade and ending with the end of the year

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 of assessment;

 Finance BillPart 3 — Income tax, corporation tax and capital gains taxChapter 9 — Avoidance involving partnership
 73

 “post-announcement loss”, in relation to a straddling year of assessment,
 means the loss (if any) sustained by the individual in the trade in the
 period which—
 (a) begins with 2nd December 2004, and
 (b) ends with the end of the basis period for that straddling year of

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 assessment;
 “post-announcement interest”, in relation to a straddling year of
 assessment, means any interest paid by the individual, in connection
 with carrying on the trade, in the period which—
 (a) begins with 2nd December 2004, and

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 (b) ends with the end of the basis period for that straddling year of
 assessment;
 “straddling year of assessment” means a year of assessment the basis
 period for which begins before and includes 2nd December 2004.
 (9) In the definition of “post-announcement loss” in subsection (8), the reference to

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 the loss sustained by the individual in the trade in a period is a reference to his
 share of any losses of the partnership arising for that period from the trade,
 and—
 (a) the losses of the partnership arising for that period from the trade are
 to be computed in the same way as if the period were one for which

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 profits and losses had to be computed for the purposes of section 849 of
 ITTOIA 2005, and
 (b) the individual’s share of the losses is to be determined according to his
 interest in the partnership during that period.
 (10) In subsection (9) the references to “the partnership” are to the partnership as a

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 member of which the individual carries on the trade.
 (11) In relation to years of assessment which are before the year 2005-06,
 subsections (7) to (9) have effect as if—
 (a) in subsection (8) for the definition of “basis period” there were
 substituted—

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 ““basis period” means the basis period given by sections 60
 to 63 of ICTA as applied by section 111(4) and (5) of that
 Act, except that the basis period for a year of assessment
 to which section 61(1) of that Act applies is to be taken
 to be the period beginning with the date when the

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 individual first carried on the trade and ending with the
 end of the year of assessment;”, and
 (b) the reference in subsection (9)(a) to section 849 of ITTOIA 2005 were a
 reference to section 111(2) of ICTA.
 (12) The amendments made by this section are deemed to have come into force on

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 2nd December 2004.