|
| |
|
67 | Consequences of a chargeable event: exit event X or Y |
| |
(1) | This section applies where a chargeable event occurs in relation to C by virtue |
| |
of section 66 and the exit event in question is exit event X or Y. |
| |
(2) | C is to be treated for corporation tax purposes as receiving, immediately before |
| |
the exit event, an amount of income from the relevant trade equal to the |
| 5 |
| |
(3) | Where the exit event is exit event X, an amount equal to the chargeable amount |
| |
is to be treated for corporation tax purposes as a loss of the relevant trade |
| |
brought forward under section 393 of ICTA (relief of trading losses against |
| |
future trading profits) to the exit accounting period. |
| 10 |
(4) | But that loss may only be set off against income which— |
| |
(a) | derives directly from the rights to guaranteed income under the |
| |
guaranteed income agreement, and |
| |
(b) | is brought into account by C for the relevant trade after the exit event, |
| |
| and, in particular, may not be set off against the income which C is treated as |
| 15 |
receiving under subsection (2) by virtue of the exit event. |
| |
(5) | The “chargeable amount” is the value immediately before the exit event of the |
| |
rights to guaranteed income under the guaranteed income agreement |
| |
calculated in accordance with section 70. |
| |
(6) | Any income received in, or losses brought forward to, an accounting period by |
| 20 |
virtue of this section are in addition to any other income received in, or losses |
| |
brought forward to, that period. |
| |
(7) | In this section “exit accounting period” means the accounting period of C in |
| |
which the exit event occurs. |
| |
(8) | This section is deemed to have come into force on 2nd December 2004. |
| 25 |
68 | Exit event Z: a relevant disposal at an undervalue |
| |
(1) | This section applies for the purposes of— |
| |
section 66(4)(c) (definition of exit event Z), |
| |
section 69 (consequences of a chargeable event: exit event Z), and |
| |
section 70 (valuation of the “disposed rights”). |
| 30 |
(2) | A “relevant disposal” means a disposal by C directly or indirectly to a third |
| |
party (“TP”) of rights to guaranteed income under the guaranteed income |
| |
| |
(3) | The “disposed rights” are the rights to guaranteed income under the |
| |
guaranteed income agreement which are the object of the relevant disposal. |
| 35 |
(4) | A relevant disposal is at an undervalue where the amount of the disposal |
| |
consideration (“V1”) is less than the value of the disposed rights immediately |
| |
before the disposal calculated in accordance with section 70 (“V2”). |
| |
(5) | It does not matter whether the disposed rights are disposed of alone or as part |
| |
| 40 |
(6) | Where the disposed rights are disposed of as part of a larger disposal, the |
| |
amount of the disposal consideration for the larger disposal which is |
| |
|
| |
|
| |
|
attributable to the relevant disposal is to be determined on such basis as is just |
| |
| |
| |
“disposal” means any surrender, giving up, assignment or other disposal; |
| |
“disposal consideration”, in relation to a disposal, means the amount of |
| 5 |
the consideration for the disposal brought into account as income of the |
| |
relevant trade by C at the date of that disposal; |
| |
“third party” means a person who is not the principal company or a 75% |
| |
subsidiary of the principal company. |
| |
(8) | This section is deemed to have come into force on 2nd December 2004. |
| 10 |
69 | Consequences of a chargeable event: exit event Z |
| |
(1) | This section applies where a chargeable event occurs in relation to C by virtue |
| |
of section 66 and the exit event in question is exit event Z. |
| |
(2) | C is to be treated for corporation tax purposes as receiving, immediately before |
| |
the exit event, an amount of income from the relevant trade equal to the |
| 15 |
| |
(3) | Where TP is within the charge to corporation tax, an amount equal to the |
| |
chargeable amount is to be treated for corporation tax purposes as a loss of TP’s |
| |
trade brought forward under section 393 of ICTA (relief of trading losses |
| |
against future trading profits) to the accounting period in which TP acquires |
| 20 |
| |
(4) | Where TP is within the charge to income tax, an amount equal to the |
| |
chargeable amount is to be treated for income tax purposes as a loss of TP’s |
| |
trade brought forward under section 385 of ICTA (carry-forward against |
| |
subsequent profits) to the year of assessment in which TP acquires the |
| 25 |
| |
(5) | But a loss brought forward under subsection (3) or (4) may only be set off |
| |
against income which derives directly from the disposed rights. |
| |
(6) | The “chargeable amount” is the difference between V1 and V2. |
| |
(7) | Any income received in, or losses brought forward to, an accounting period by |
| 30 |
virtue of this section are in addition to any other income received in, or losses |
| |
brought forward to, that period. |
| |
(8) | This section is deemed to have come into force on 2nd December 2004. |
| |
70 | Valuation of the “rights to guaranteed income” and “disposed rights” |
| |
(1) | For the purposes of section 67, the value immediately before the exit event of |
| 35 |
the rights to guaranteed income under the guaranteed income agreement is |
| |
| |
| |
| |
| Find the amount of each payment of income which at that time the guaranteed |
| 40 |
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”). |
| |
| |
|
| |
|
| |
|
| For each payment find the day for payment which the agreement is designed |
| |
to secure (“the payment day”). |
| |
| |
| 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 |
| 5 |
(b) | ends with the payment day. |
| |
| |
| Calculate the net present value of each payment (“NPVRI”) by applying the |
| |
following formula— |
| |
| 10 |
T is the temporal discount rate, and |
| |
i is the number of days in P divided by 365. |
| |
| |
| Add together each amount of NPVRI determined under step 4. |
| |
(2) | For the purposes of section 68, in relation to a relevant disposal, the value of |
| 15 |
the disposed rights immediately before the disposal is calculated as follows— |
| |
| |
| |
| 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 |
| 20 |
disposed rights but which at that time has not been brought into account for |
| |
the relevant trade by C (“DI”). |
| |
| |
| For each payment find the day for payment which the agreement is designed |
| |
to secure (“the payment day”). |
| 25 |
| |
| 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. |
| |
| 30 |
| Calculate the net present value of each payment (“NPVDI”) by applying the |
| |
following formula— |
| |
| |
T is the temporal discount rate, and |
| |
i is the number of days in P divided by 365. |
| 35 |
| |
| 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. |
| |
(4) | Regulations under subsection (3) may make such provision as is mentioned in |
| 40 |
subsection (3)(b) to (f) of section 178 of FA 1989 (power of Treasury to set rates |
| |
| |
|
| |
|
| |
|
(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) |
| |
as it applies in relation to regulations under that section. |
| |
(6) | This section is deemed to have come into force on 2nd December 2004. |
| |
71 | Meaning of “company” and related terms |
| 5 |
(1) | For the purposes of sections 66 to 70, two companies are deemed to be |
| |
members of a group of companies if— |
| |
(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 |
| 10 |
| |
(a) | which is not a 75% subsidiary of another company 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 trading losses |
| |
| 15 |
(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 |
| |
trading losses surrendered by C. |
| |
(3) | For the purposes of sections 66 to 70 and this section— |
| |
(a) | a company is to be treated as a 75% subsidiary of another company if it |
| 20 |
would be such a subsidiary of that company for the purposes of section |
| |
402 of ICTA (surrender of relief between members of group), and |
| |
(b) | “company” has the same meaning as it has for the purposes of that |
| |
| |
(4) | This section is deemed to have come into force on 2nd December 2004. |
| 25 |
| |
Avoidance involving partnership |
| |
Partners: restrictions on relief |
| |
72 | Removal of restrictions on interest relief |
| |
(1) | In section 117 of ICTA (restriction on interest relief and loss relief for limited |
| 30 |
| |
| |
| |
(ii) | in paragraph (a) omit “, or of interest paid by him in connection |
| |
with the carrying on of a trade,”, |
| 35 |
(b) | in subsection (2), in the definition of “the aggregate amount”— |
| |
| |
(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 |
| 40 |
| |
|
| |
|
| |
|
(2) | In section 118ZB of that Act (limited liability partnerships: restriction on relief), |
| |
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 |
| 5 |
carrying on of a trade,”. |
| |
(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 |
| |
| |
(5) | In section 118ZG of that Act (meaning of “the individual’s contribution to the |
| 10 |
trade”), in subsection (2)(b)(ii) omit “353,” and “, or of interest paid by him in |
| |
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,”, |
| 15 |
| |
(i) | omit “the sum of”, and |
| |
(ii) | omit paragraph (b) and the word “and” immediately before it, |
| |
| |
(c) | in subsection (5) omit paragraph (b) and the word “and” immediately |
| 20 |
| |
(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 |
| 25 |
in connection with the carrying on of a trade, in a year of assessment the |
| |
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. |
| 30 |
(8) | 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 |
| 35 |
individual first carried on the trade and ending with the end of the year |
| |
| |
“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 |
| |
| 40 |
(a) | begins with 2nd December 2004, and |
| |
(b) | ends with the end of the basis period for that straddling year of |
| |
| |
“post-announcement interest”, in relation to a straddling year of |
| |
assessment, means any interest paid by the individual, in connection |
| 45 |
with carrying on 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 |
| |
| |
|
| |
|
| |
|
“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 |
| |
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, |
| 5 |
| |
(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 |
| |
profits and losses had to be computed for the purposes of section 849 of |
| |
| 10 |
(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 |
| |
member of which the individual carries on the trade. |
| |
(11) | In relation to years of assessment which are before the year 2005-06, |
| 15 |
subsections (7) to (9) have effect as if— |
| |
(a) | in subsection (8) for the definition of “basis period” there were |
| |
| |
““basis period” means the basis period given by sections 60 |
| |
to 63 of ICTA as applied by section 111(4) and (5) of that |
| 20 |
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 |
| |
individual first carried on the trade and ending with the |
| |
end of the year of assessment;”, and |
| 25 |
(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 |
| |
| |
73 | Meaning of “contribution to the trade” |
| 30 |
(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 |
| |
following provisions (“the relevant provisions”)— |
| 35 |
(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), |
| |
| to an amount which may be given to an individual under section 380 or |
| 40 |
381 in respect of a relevant loss sustained by him in a trade (“the |
| |
| |
(2) | The Board may by regulations provide that, for those purposes, any |
| |
amount of a description specified in the regulations is to be excluded |
| |
|
| |
|
| |
|
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 |
| |
| 5 |
(b) | make such supplementary, incidental, consequential or |
| |
transitional provision as appears to the Board to be necessary or |
| |
| |
(c) | make different provision for different cases or different |
| |
| 10 |
(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. |
| 15 |
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 |
| |
| 20 |
(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 |
| 25 |
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 |
| |
| 30 |
“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 |
| 35 |
| |
“straddling year of assessment” means a year of assessment the |
| |
basis period for which begins before and includes 2nd |
| |
| |
(3) | In the definition of “post-announcement loss” in subsection (2), the |
| 40 |
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 |
| 45 |
one for which profits and losses had to be computed for the |
| |
purposes of section 849 of ITTOIA 2005, and |
| |
|
| |
|