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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.

40

 
 

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.

 
 

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

367

 

   

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.

 
 

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

369

 

(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.

 
 

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

370

 

(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—

 
 

 
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