Finance Bill

House of Commons

Session 2004 - 05
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Finance Bill

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 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 Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 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.
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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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trading losses surrendered by C.
(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
35
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 Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 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
on of a trade,”.
(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
carrying on of a trade,”.
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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
carrying on of a trade, in a straddling year of assessment.
(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 Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 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.