Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 12 — Tax avoidance
Chapter 4 — Sales of occupation income
364

(b)
the individual is also treated as having income as a result of Chapter 3
(transactions in land),

only a just and reasonable proportion of each capital amount treated as
occupation income is to be treated as the highest part of the individual’s total
income.
5
(8)
See section 946 for the relationship between—
(a)
the rules in subsections (6) and (7), and
(b)
other rules requiring particular income to be treated as the highest part
of a person’s total income.
720
Recovery of tax: certificates of tax paid etc
10
(1)
For the purposes of section 719(3), an officer of Revenue and Customs must, if
requested to do so, produce a certificate specifying—
(a)
the amount of income in respect of which tax has been paid, and
(b)
the amount of tax paid.
(2)
The certificate is conclusive evidence of any facts stated in it.
15
(3)
See also section 877 (under which directions may be given for payments within
this Chapter to non-UK residents to be subject to a duty to deduct income tax).
Power to obtain information
721
Power to obtain information
(1)
An officer of Revenue and Customs may by notice require any person to
20
provide the officer within such period as the officer may direct with such
particulars as the officer may reasonably require for the purposes of this
Chapter.
(2)
That period must be at least 30 days.
(3)
The particulars which a person must provide under this section, if required to
25
do so by such a notice, include particulars about—
(a)
transactions or arrangements with respect to which the person is or was
acting on behalf of others,
(b)
transactions or arrangements which in the opinion of the officer should
properly be investigated for the purposes of this Chapter, although in
30
the person’s opinion no liability to tax arises under this Chapter, and
(c)
whether the person has taken or is taking any part and, if so, what part
in transactions or arrangements of a description specified in the notice.
(4)
Subsection (3) is subject to subsection (5).
(5)
In relation to anything done by a solicitor on behalf of a client who does not
35
consent to the provision of information required to be provided by a notice
under subsection (1), the solicitor may not be compelled under this section to
do more than—
(a)
state that the solicitor was acting on behalf of a client, and
(b)
give the name and address of the client.
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Income Tax Bill
Part 12 — Tax avoidance
Chapter 5 — Avoidance involving trading losses
365

(6)
A solicitor is not treated as having taken part in a transaction or arrangement
for the purposes of subsection (3)(c) merely because of giving professional
advice to a client about it.
Interpretation
722
Minor definitions
5
In this Chapter—
“company” includes any body corporate, and
“share” includes stock.
Chapter 5
Avoidance involving trading losses
10
Introduction
723
Overview of Chapter
(1)
This Chapter imposes charges to income tax on—
(a)
individuals who are treated as receiving income under section 725
(individuals in partnership claiming excess relief),
15
(b)
individuals who are treated as receiving income under section 730
(individuals claiming relief for film-related trading losses), and
(c)
individuals who are treated as receiving income under section 738
(individuals in partnership claiming relief for licence-related trading
losses).
20
(2)
The charges apply if (among other things) the individual makes a loss in a
trade for which the individual claims sideways relief or capital gains relief.
(3)
For the purposes of this Chapter sideways relief is—
(a)
trade loss relief against general income (see sections 64 to 70), or
(b)
early trade losses relief (see sections 72 to 74).
25
(4)
For the purposes of this Chapter—
(a)
capital gains relief is, in relation to a loss, the treatment of the loss as an
allowable loss by virtue of section 261B of TCGA 1992 (use of trading
loss as a CGT loss), and
(b)
capital gains relief is claimed for a loss when a claim under that section
30
is made in relation to the loss.
(5)
References in this Chapter to a firm are to be read in the same way as references
to a firm in Part 9 of ITTOIA 2005 (which contains special provision about
partnerships).

Income Tax Bill
Part 12 — Tax avoidance
Chapter 5 — Avoidance involving trading losses
366

Individuals in partnership: recovery of excess relief
724
Charge to tax on income treated as received under section 725
(1)
Income tax is charged on income treated as received by an individual under
section 725.
(2)
Tax is charged under this section on the amount of the income treated as
5
received in the tax year.
(3)
The person liable for any tax charged under this section is the individual
treated as receiving the income.
725
Partners claiming excess sideways or capital gains relief
(1)
This section applies if—
10
(a)
an individual carrying on a trade (“the relevant trade”) as a partner in
a firm makes post-1 December 2004 losses in the relevant trade for
which the individual claims relief within subsection (2),
(b)
any of sections 104, 107 and 110 applies in relation to the relief (whether
or not any of those sections restricts the amount of the relief), and
15
(c)
after the individual makes the claim or claims, a chargeable event
occurs.
(2)
The relief within this subsection is—
(a)
sideways relief but only if the whole or part of the relief is claimed
against income of the individual apart from profits of the relevant
20
trade, and
(b)
capital gains relief.
(3)
A chargeable event occurs whenever—
(a)
the amount of the individual’s contribution to the firm is reduced as a
result of the application of regulations made under section 114, and
25
(b)
that reduction in the individual’s contribution to the firm immediately
results in—
(i)
the total amount of trade losses claimed (less any reclaimed
relief) becoming greater than the contribution, or
(ii)
an increase in the amount by which the total amount of trade
30
losses claimed (less any reclaimed relief) exceeds the
contribution.
(4)
The individual is treated as receiving an amount of income every time a
chargeable event occurs.

The income is treated as arising otherwise than as profits of a trade.
35
(5)
The amount of the income is calculated in accordance with section 726.
(6)
If—
(a)
the firm is carrying on, or has carried on, more than one trade, and
(b)
subsection (1)(a) and (b) applies in relation to losses made by the individual in
one or more of those trades as a partner in the firm,
40

the firm’s trades are taken together for the purpose of determining whether a chargeable
event occurs at any time after a claim in relation to any of those losses has been made
and, if one does occur, the amount of income treated as received by the individual at
that time.

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Part 12 — Tax avoidance
Chapter 5 — Avoidance involving trading losses
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See section 727(6) for modifications giving effect to this.
(7)
References in this section to an individual being a partner in a firm include a
reference to an individual being a limited partner within the meaning of
section 106 as a result of subsection (1)(c) of that section.
(8)
And, accordingly, in the case of an individual who is such a limited partner, in
5
this section and in sections 726 to 728 references to the individual’s firm are
references to the relationship between the individual and the other persons
mentioned in section 106(3)(a).
726
Calculating the amount of income treated as received
(1)
The amount of income treated as received by the individual under section 725
10
when the chargeable event occurs is the lowest of amounts A to C.
(2)
Amount A is the amount by which the individual’s contribution to the firm is
reduced as a result of the application of regulations made under section 114.
(3)
Amount B is the amount given by—
(a)
taking, at the time immediately after the chargeable event occurs, the
15
total amount of trade losses claimed that are post-1 December 2004
losses, and
(b)
reducing that amount (but not below nil) by any reclaimed relief.
(4)
Amount C is the amount given by—
(a)
taking the amount by which, at the time immediately after the
20
chargeable event occurs, the total amount of trade losses claimed
exceeds the individual’s contribution to the firm, and
(b)
reducing that amount (but not below nil) by any reclaimed relief.
727
Meaning of “the total amount of trade losses claimed” etc
(1)
In sections 725 and 726 “the total amount of trade losses claimed” means the
25
total amount of losses within subsection (2) for which the individual has
claimed sideways relief or capital gains relief.
(2)
The losses within this subsection are losses made by the individual in the
relevant trade—
(a)
in a tax year at a time during which the individual carries on the
30
relevant trade as a limited partner or as a member of an LLP, or
(b)
in an early tax year during which the individual carries on the relevant
trade as a non-active partner.

Expressions used in this subsection are to be read as if contained in Chapter 3
of Part 4.
35
(3)
In sections 725 and 726 “reclaimed relief” means the total amount of income
treated as received by the individual under section 725 as a result of that
section being previously applied in relation to claims for relief for losses made
by the individual in the relevant trade.
(4)
In sections 725 and 726 “the individual’s contribution to the firm” at any time
40
means the individual’s contribution to the firm or the LLP (as the case may be)
at that time as calculated for the purposes of the relevant restriction provision.
(5)
The “relevant restriction provision” means—

Income Tax Bill
Part 12 — Tax avoidance
Chapter 5 — Avoidance involving trading losses
368

(a)
whichever of sections 104, 107 and 110 applied as mentioned in section
725(1)(b), or
(b)
if more than one of those sections applied as mentioned in section
725(1)(b), the section which so applied to the amount of relief which
could be given for the loss most recently made by the individual in the
5
relevant trade.
(6)
In a case to which section 725(6) applies, for the purpose of determining the total
amount of trade losses claimed, the amount of the reclaimed relief and the relevant
restriction provision—
(a)
apply subsections (1) and (2) in relation to each of the trades that the firm is
10
carrying on, or has carried on, and then add the results together, and
(b)
apply subsections (3) and (5)(b) as if references to the relevant trade were
references to any of the trades that the firm is carrying on, or has carried on.

But if a trade is of the kind mentioned in section 110(8), do not apply subsection (2)(b)
in relation to it.
15
728
Meaning of “post-1 December 2004 loss”
(1)
For the purposes of sections 725 and 726 a “post-1 December 2004 loss”
means—
(a)
any loss made by an individual in a trade in a tax year the basis period
for which begins on or after 2 December 2004, or
20
(b)
the post-1 December 2004 part of any loss made by an individual in a
trade in a tax year the basis period for which includes 2 December 2004
(but begins before that date).
(2)
The “post-1 December 2004 part” of any loss made by an individual in a trade
means the individual’s share of any losses made by the relevant firm in the
25
trade in the period—
(a)
beginning with 2 December 2004, and
(b)
ending with the end of the basis period for the tax year concerned.
(3)
For this purpose “the relevant firm” means the firm in which the individual
carried on the trade, and—
30
(a)
the losses of that firm are calculated as if that period were one for which
profits and losses had to be calculated for the purposes of section 849 of
ITTOIA 2005 (calculation of firm’s profits or losses), and
(b)
the individual’s share of the losses is determined in accordance with
the individual’s interest in the firm during that period.
35
(4)
In this section “basis period”, in relation to an individual with a notional trade,
means the basis period for the notional trade (within the meaning of Part 9 of
ITTOIA 2005).
Individuals claiming relief for film-related trading losses
729
Charge to tax on income treated as received under section 730
40
(1)
Income tax is charged on income treated as received by an individual under
section 730.
(2)
Tax is charged under this section on the amount of the income treated as
received in the tax year.

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Part 12 — Tax avoidance
Chapter 5 — Avoidance involving trading losses
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(3)
The person liable for any tax charged under this section is the individual
treated as receiving the income.
730
Individuals claiming sideways or capital gains relief for film-related losses
(1)
This section applies if—
(a)
an individual makes a film-related loss (see section 733) in a trade for
5
which the individual claims sideways relief or capital gains relief (a
“relevant claim”),
(b)
there is a disposal of a right of the individual to profits arising from the
trade (a “relevant disposal”) (see section 732), and
(c)
an exit event occurs.
10
(2)
An exit event occurs whenever—
(a)
the individual receives any non-taxable consideration (see section 731)
for a relevant disposal, or
(b)
an increase in the individual’s claimed film-related losses (see section
733) or a decrease in the individual’s capital contribution (see section
15
734) results in—
(i)
those losses becoming greater than that contribution, or
(ii)
an increase in the amount by which those losses exceed that
contribution.
(3)
The individual is treated as receiving an amount of income every time a
20
chargeable event occurs.

The income is treated as arising otherwise than as profits of the trade.
(4)
A chargeable event occurs whenever—
(a)
the individual makes a relevant claim (if by that time a relevant
disposal and an exit event have occurred),
25
(b)
a relevant disposal occurs (if by that time an exit event has occurred and
the individual has made a relevant claim), or
(c)
an exit event occurs (if by that time a relevant disposal has occurred and
the individual has made a relevant claim).
(5)
The amount of income treated as received when a chargeable event occurs is
30
equal to the sum of—
(a)
the total amount or value of all non-taxable consideration received by
the individual for relevant disposals, and
(b)
the amount (if any) by which the individual’s claimed film-related
losses exceed the individual’s capital contribution.
35

The calculation in this subsection is made immediately after the chargeable
event occurs and is subject to section 736.
(6)
For the purposes of this section it does not matter—
(a)
if the individual (or anyone else) is still carrying on the trade when a
chargeable event occurs, or
40
(b)
if the individual receives both non-taxable and taxable consideration
for a relevant disposal.
731
Meaning of “non-taxable consideration” etc
(1)
This section applies for the purposes of section 730.

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Part 12 — Tax avoidance
Chapter 5 — Avoidance involving trading losses
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(2)
Consideration is non-taxable if (apart from section 729) it is not chargeable to
income tax.
(3)
Non-taxable consideration from which a deduction within subsection (4) is
made is treated as received free of the deduction.
(4)
A deduction is within this subsection if it is in consideration of any person’s
5
agreeing to, or facilitating, any relevant disposal or exit event.
732
Meaning of “disposal of a right of the individual to profits” etc
(1)
For the purposes of section 730 any reference to a disposal of a right of an
individual to profits arising from a trade includes, in particular, any of events
A to D.
10
(2)
Event A is the disposal, giving up or loss by—
(a)
the individual, or
(b)
a firm in which the individual is a partner,

of a right arising from the trade to income (or any part of any income).

It does not matter if the right is disposed of, given up or lost as part of a larger
15
disposal, giving up or loss.
(3)
Event B is the disposal, giving up or loss of the individual’s interest in a firm
that carries on the trade (including the dissolution of the firm).
(4)
Event C is a default in the payment of income to which—
(a)
the individual, or
20
(b)
a firm in which the individual is a partner,

has a right arising from the trade.
(5)
Event D is a change in the individual’s entitlement to any profits or losses
arising from the trade the effect of which is that—
(a)
the individual’s share of any profits is reduced (including to nil), or
25
(b)
the individual becomes entitled to a share, or a greater share, of any
losses without becoming entitled to a corresponding share of profits.
(6)
The changes covered by event D include cases where there is an agreement
under which the individual is entitled—
(a)
to a particular share of any profits or losses arising from the trade in a
30
period (including a nil share), and
(b)
to a different share of any such profits or losses in a succeeding period
(including a nil share).
(7)
In such cases the change in the individual’s entitlement is treated for the
purposes of section 730 as occurring at the beginning of the succeeding period.
35
733
Meaning of “film-related losses” etc
(1)
This section applies for the purposes of sections 730, 734 and 735.
(2)
A loss is a “film-related loss” if the calculation of profits or losses that it results
from is made in accordance with any provision of Chapter 9 of Part 2 of ITTOIA
2005.
40
(3)
“The individual’s claimed film-related losses” means—