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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.

 
 

 
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