Finance (No. 2) Bill

House of Commons

Session 2004 - 05
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Other Bills before Parliament

Finance (No. 2) Bill

Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 7 — Avoidance involving partnership
54

(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
partnership as a member of which the individual carries on the relevant
trade.
5
(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
substituted—
““basis period” means the basis period given by sections 60
10
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
with the date when the individual first carried on the
trade and ending with the end of the year of
15
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.”
(2)
In section 117 of ICTA (restriction on relief for limited partners) at the end
add—
20
“(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
of a limited liability partnership) at the end add—
“(5)
This section is subject to provision made by regulations under section
25
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—
“(7)
This section is subject to provision made by regulations under section
118ZN (partners: meaning of “contribution to the trade”).”
30
(5)
The amendments made by this section are deemed to have come into force on
2nd December 2004.
Partners: recovery of excess relief
74
Recovery of excess relief given under section 380 or 381 of ICTA
(1)
This section applies where—
35
(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,
40
(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

Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 7 — Avoidance involving partnership
55

(d)
at any time after the claim or claims mentioned in paragraph (a) has or
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
5
member of a limited liability partnership, and
(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—
10
(a)
the total losses claimed (less any reclaimed relief) becoming greater
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.
15
(4)
Where a chargeable event occurs in relation to an individual—
(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
20
be chargeable to income tax for the year of assessment in which the
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
25
extent that they are losses—
(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.
30
(6)
“Reclaimed relief” means the total of the amounts which the individual has
been treated as receiving under subsection (4) as a result of the occurrence of
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
35
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
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
40
(1)(c), or
(b)
where more than one restriction provision so applied, the restriction
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.
45
(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
application of any regulations made under section 118ZN of ICTA (partners:

Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 7 — Avoidance involving partnership
56

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.
(11)
An “eligible year of assessment” is—
5
(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
that Act.
10
(12)
In sections 75 to 77 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.
75
Computing the chargeable amount
(1)
For the purposes of section 74, the “chargeable amount” is determined by
15
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—
(a)
taking, at the time immediately after the occurrence of the chargeable
20
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.
(4)
Amount C is the amount given by—
25
(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
(b)
reducing that amount (but not below nil) by any reclaimed relief at that
time.
30
(5)
This section is deemed to have come into force on 2nd December 2004.
76
Meaning of “relevant loss”
(1)
For the purposes of sections 74 and 75 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
35
2004, or
(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
40
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

Finance (No. 2) Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 7 — Avoidance involving partnership
57

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—
5
(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.
10
(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
15
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.
20
(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.
77
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
25
2005-06.
(2)
Subsection (4) of section 74 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
of an amount equal to the chargeable amount and are chargeable to income tax
30
under Case VI of Schedule D.”.
(3)
Section 76 has effect as if—
(a)
in subsection (2) for the definition of “basis period” there were
substituted—
““basis period” means the basis period given by sections 60
35
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
individual first carried on the relevant trade and ending
40
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.