Finance Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

Finance Bill

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving partnership
74

97
Meaning of “contribution to the trade”
(1)
After section 118ZM of ICTA insert—
“Partners: meaning of “contribution to the trade”
118ZN
Partners: meaning of “contribution to the trade”
(1)
This section applies for the purposes of the application of any of the
5
following provisions (“the relevant provisions”)—
(a)
section 117 (restriction on relief for limited partners),
(b)
that section as applied by section 118ZB in relation to a member
of a limited liability partnership, and
(c)
section 118ZE (restriction on relief for non-active partners),
10

to an amount which may be given to an individual under section 380 or
381 in respect of a relevant loss sustained by him in a trade (“the
relevant trade”).
(2)
The Board may by regulations provide that, for those purposes, any
amount of a description specified in the regulations is to be excluded
15
when computing the amount of the individual’s contribution to the
relevant trade at any time for the purposes of the relevant provisions.
(3)
Regulations under this section may—
(a)
make provision having effect before the date on which the
regulations are made,
20
(b)
make such supplementary, incidental, consequential or
transitional provision as appears to the Board to be necessary or
expedient, and
(c)
make different provision for different cases or different
purposes.
25
(4)
The provision mentioned in subsection (3)(b) may include provision
amending or repealing any provision of an Act passed before the
passing of the Finance Act 2005.
(5)
No regulations may be made under this section unless a draft has been
laid before and approved by a resolution of the House of Commons.
30
118ZO
Meaning of “relevant loss” in section 118ZN
(1)
For the purposes of section 118ZN a “relevant loss” means—
(a)
a loss sustained by the individual in the relevant trade in a year
of assessment the basis period for which begins on or after 2nd
December 2004, or
35
(b)
a post-announcement loss sustained by the individual in the
relevant trade in a straddling year of assessment.
(2)
For the purposes of this section—
“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
40
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
relevant trade and ending with the end of the year of
assessment;
45

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving partnership
75

“post-announcement loss”, in relation to a straddling year of
assessment, means the loss (if any) sustained by the individual
in the relevant trade in the period which—
(a)
begins with 2nd December 2004, and
(b)
ends with the end of the basis period for that straddling
5
year of assessment;
“straddling year of assessment” means a year of assessment the
basis period for which begins before and includes 2nd
December 2004.
(3)
In the definition of “post-announcement loss” in subsection (2), the
10
reference to the loss sustained by the individual in the relevant 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
15
one for which 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.
(4)
In subsection (3) the references to “the partnership” are to the
20
partnership as a member of which the individual carries on the relevant
trade.
(5)
In relation to years of assessment which are before the year 2005-06, this
section has effect as if—
(a)
in subsection (2) for the definition of “basis period” there were
25
substituted—
““basis period” means the basis period given by sections 60
to 63 as applied by section 111(4) and (5), except that the
basis period for a year of assessment to which section
61(1) applies is to be taken to be the period beginning
30
with the date when the individual first carried on the
trade and ending with the end of the year of
assessment;”, and
(b)
the reference in subsection (3)(a) to section 849 of ITTOIA 2005
were a reference to section 111(2) of this Act.”
35
(2)
In section 117 of ICTA (restriction on relief for limited partners) at the end
add—
“(5)
This section is subject to provision made by regulations under section
118ZN (partners: meaning of “contribution to the trade”).”
(3)
In section 118ZC of ICTA (meaning of the contribution to the trade of a member
40
of a limited liability partnership) at the end add—
“(5)
This section is subject to provision made by regulations under section
118ZN (partners: meaning of “contribution to the trade”).”
(4)
In section 118ZG of ICTA (meaning of a non-active partner’s contribution to
the trade) at the end add—
45
“(7)
This section is subject to provision made by regulations under section
118ZN (partners: meaning of “contribution to the trade”).”

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving partnership
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(5)
The amendments made by this section are deemed to have come into force on
2nd December 2004.
Partners: recovery of excess relief
98
Recovery of excess relief given under section 380 or 381 of ICTA
(1)
This section applies where—
5
(a)
an individual makes one or more claims for relief under section 380 or
381 of ICTA at any time in respect of any relevant losses sustained by
him in a trade (“the relevant trade”),
(b)
the whole or part of that relief has been claimed against income other
than income consisting of profits arising from the relevant trade,
10
(c)
the amount of the relief which could be given against such income was
determined in accordance with one or more of the restriction
provisions (whether or not any of those provisions prevented any
amount of relief being given), and
(d)
at any time after the claim or claims mentioned in paragraph (a) has or
15
have been made, a chargeable event occurs in relation to the individual.
(2)
The “restriction provisions” are—
(a)
section 117 of ICTA (restriction on relief for limited partners),
(b)
that section as applied by section 118ZB of ICTA in relation to a
member of a limited liability partnership, and
20
(c)
section 118ZE of ICTA (restriction on relief for non-active partners).
(3)
A “chargeable event” occurs in relation to an individual at any time when a
relevant decrease in the individual’s contribution to the relevant trade occurs
which immediately results in—
(a)
the total losses claimed (less any reclaimed relief) becoming greater
25
than the individual’s contribution to the relevant trade, or
(b)
an increase in the amount (if any) by which the total losses claimed (less
any reclaimed relief) exceeds the individual’s contribution to the
relevant trade.
(4)
Where a chargeable event occurs in relation to an individual—
30
(a)
the individual is to be treated as receiving at the time of the occurrence
of the chargeable event an amount of income equal to the chargeable
amount,
(b)
that income is not to be treated as profits of the relevant trade and is to
be chargeable to income tax for the year of assessment in which the
35
chargeable event occurs, and
(c)
the individual is to be liable for any tax so chargeable.
(5)
The “total losses claimed” means the total amount of any losses sustained by
the individual in the relevant trade in any eligible year of assessment to the
extent that they are losses—
40
(a)
in respect of which the individual has at any time claimed relief under
section 380 or 381 of ICTA, or
(b)
that he has at any time claimed as allowable losses under section 72 of
FA 1991.
(6)
“Reclaimed relief” means the total of the amounts which the individual has
45
been treated as receiving under subsection (4) as a result of the occurrence of

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving partnership
77

any previous chargeable event in relation to the individual in respect of the
relevant trade.
(7)
The “individual’s contribution to the relevant trade” at any time means the
amount of the individual’s contribution to that trade at that time within the
meaning given for the purposes of the relevant restriction provision and
5
computed at that time in accordance with that provision.
(8)
The “relevant restriction provision” means—
(a)
the restriction provision which applied as mentioned in subsection
(1)(c), or
(b)
where more than one restriction provision so applied, the restriction
10
provision which so applied to the amount of relief which could be
given in respect of the relevant loss which was most recently sustained
by the individual in the relevant trade.
(9)
A “relevant decrease in the individual’s contribution to the relevant trade”
occurs when the amount of that contribution becomes, as a result of the
15
application of any regulations made under section 118ZN of ICTA (partners:
meaning of “contribution to the trade”), less than the amount it would
otherwise be apart from the application of those regulations.
(10)
The “amount of the relevant decrease in the individual’s contribution to the
relevant trade” is the difference between those two amounts.
20
(11)
An “eligible year of assessment” is—
(a)
a year of assessment at any time during which the individual carried on
the relevant trade as a member of a limited liability partnership or as a
limited partner within the meaning given by section 117(2) of ICTA, or
(b)
a qualifying year of assessment within the meaning of section 118ZE of
25
that Act.
(12)
In sections 99 to 101 references to expressions which are defined in this section
are to be construed in accordance with this section.
(13)
This section is deemed to have come into force on 2nd December 2004.
99
Computing the chargeable amount
30
(1)
For the purposes of section 98, the “chargeable amount” is determined by
taking whichever is the smallest of amounts A, B and C.
(2)
Amount A is the amount of the relevant decrease in the individual’s
contribution to the relevant trade which constitutes the chargeable event.
(3)
Amount B is the amount given by—
35
(a)
taking, at the time immediately after the occurrence of the chargeable
event, the amount of the total losses claimed which are relevant losses,
and
(b)
reducing that amount (but not below nil) by any reclaimed relief at that
time.
40
(4)
Amount C is the amount given by—
(a)
taking the amount by which, at the time immediately after the
occurrence of the chargeable event, the total losses claimed exceed the
individual’s contribution to the relevant trade, and

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving partnership
78

(b)
reducing that amount (but not below nil) by any reclaimed relief at that
time.
(5)
This section is deemed to have come into force on 2nd December 2004.
100
Meaning of “relevant loss”
(1)
For the purposes of sections 98 and 99 a “relevant loss” means—
5
(a)
a loss sustained by the individual in the relevant trade in a year of
assessment the basis period for which begins on or after 2nd December
2004, or
(b)
a post-announcement loss sustained by the individual in the relevant
trade in a straddling year of assessment.
10
(2)
For the purposes of this section—
“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
15
individual first carried on the relevant trade and ending with the end
of the year of assessment;
“post-announcement loss”, in relation to a straddling year of assessment,
means the loss (if any) sustained by the individual in the relevant trade
in the period which—
20
(a)
begins with 2nd December 2004, and
(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.
25
(3)
In the definition of “post-announcement loss” in subsection (2), the reference to
the loss sustained by the individual in the relevant 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
30
to 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 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.
35
(4)
In subsection (3) the references to “the partnership” are to the partnership as a
member of which the individual carries on the relevant trade.
(5)
This section is deemed to have come into force on 2nd December 2004.
101
Transitional provision for years of assessment before the year 2005-06
(1)
This section applies in relation to years of assessment which are before the year
40
2005-06.
(2)
Subsection (4) of section 98 has effect as if for “individual—” to the end there
were substituted “individual, the individual is to be treated as receiving at the
time of the occurrence of the chargeable event annual profits or gains which are

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving partnership
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of an amount equal to the chargeable amount and are chargeable to income tax
under Case VI of Schedule D.”.
(3)
Section 100 has effect as if—
(a)
in subsection (2) for the definition of “basis period” there were
substituted—
5
““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
10
individual first carried on the relevant trade and ending
with the end of the year of assessment;”, and
(b)
the reference in subsection (3)(a) to section 849 of ITTOIA 2005 were a
reference to section 111(2) of ICTA.
(4)
This section is deemed to have come into force on 2nd December 2004.
15
102
Consequential amendments
(1)
In section 117(2) of ICTA (restriction on relief for limited partners)—
(a)
at the end of the definition of “the aggregate amount” insert—

“less the amount of any reclaimed relief at that time;”, and
(b)
after that definition insert—
20
““the amount of any reclaimed relief” at any time means
the total of any amounts at that time which the
individual has been treated as receiving under section
98 of the Finance Act 2005 (recovery of excess relief
given under section 380 or 381) as a result of the
25
application of that section of that Act to him in respect of
losses sustained by him in the trade;”.
(2)
In section 118ZF of ICTA (meaning of “the aggregate amount”)—
(a)
in subsection (1), after “subsection (2)” insert “, less the amount of any
reclaimed relief.”, and
30
(b)
after that subsection insert—
“(1A)
For the purposes of subsection (1) “the amount of any reclaimed
relief” means the total of any amounts which the individual has
been treated as receiving under section 98 of the Finance Act
2005 (recovery of excess relief given under section 380 or 381) as
35
a result of the application of that section of that Act to him in
respect of losses sustained by him in the trade.”
(3)
In section 121 of FA 2004 (definition of “the losses claimed”)—
(a)
at the end of subsection (1) insert—

“less the amount of any relevant reclaimed relief.”, and
40
(b)
after that subsection insert—
“(1A)
The “amount of any relevant reclaimed relief” means whichever
is the lesser of—
(a)
the total of any amounts which the individual has been
treated as receiving under section 98 of the Finance Act
45
2005 (recovery of excess relief given under section 380 or
381 of the Taxes Act 1988) as a result of the application

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Part 3 — Income tax, corporation tax and capital gains tax
Chapter 9 — Avoidance involving partnership
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of that section of that Act to him in respect of losses
sustained by him in the trade, and
(b)
the total amount of any film-related losses sustained by
the individual in the trade in any eligible years of
assessment within the meaning of section 98 of the
5
Finance Act 2005 to the extent that they are losses in
respect of which he has at any time claimed relief as
described in paragraph (a) or (b) of subsection (1)
above.”
(4)
The amendments made by this section are deemed to have come into force on
10
2nd December 2004.
Partners benefited by film relief
103
Meaning of “capital contribution to the trade”
(1)
After section 122 of FA 2004 insert—
"122A
Partners: meaning of “capital contribution to the trade”
15
(1)
This section applies for the purposes of section 119 where an individual
makes a relevant claim (within the meaning of subsection (1)(a) of that
section) in respect of a film-related loss sustained by him in a trade
carried on in partnership (“the relevant trade”).
(2)
The Board may by regulations provide that for the purposes of
20
determining under section 119—
(a)
whether an exit event within the meaning of subsection (2)(b) or
(c) of that section occurs on or after 2nd December 2004, and
(b)
where such an event occurs on or after that date, the chargeable
amount within the meaning of subsection (5) of that section,
25

any amount of a description specified in the regulations is to be
excluded when computing the amount of the individual’s capital
contribution to the relevant trade.
(3)
Regulations under this section may—
(a)
make provision having effect before the date on which the
30
regulations are made,
(b)
make such supplementary, incidental, consequential or
transitional provision as appears to the Board to be necessary or
expedient, and
(c)
make different provision for different cases or different
35
purposes.
(4)
The provision mentioned in subsection (3)(b) may include provision
amending or repealing any provision of an Act passed before the
Finance Act 2005.
(5)
No regulations may be made under this section unless a draft has been
40
laid before and approved by a resolution of the House of Commons.”
(2)
In section 121 of FA 2004 (definition of “the individual’s capital contribution to