Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 5 — Losses (except losses on disposal of shares)
614

Early trade losses relief
21    (1)
This paragraph applies for the purposes of section 72 if the loss is made in
the tax year 2007-08, 2008-09 or 2009-10.
      (2)
Relief for the loss can be given for one or more of the tax years 2004-05, 2005-
06 and 2006-07 (depending on the tax year in which the loss is made).
5
      (3)
If relief for the loss is to be given for one or more of those tax years, the relief
is given in the way in which it would have been given had it been given
under section 381 of ICTA ignoring this Act (and section 73 of this Act is to
be read accordingly).
22    (1)
This paragraph applies if—
10
(a)
a person makes a loss (“the 2006-07 loss”) in a trade in the tax year
2006-07,
(b)
relief under section 381 of ICTA is not available for the 2006-07 loss
because of subsection (4) of that section,
(c)
the person makes a loss (“the 2007-08 loss”) in the trade in the tax
15
year 2007-08,
(d)
(apart from this paragraph) relief under section 72 of this Act is not
available for the 2007-08 loss because of section 74 of this Act,
(e)
the basis period for the tax year 2007-08 overlaps with the tax year
2006-07, and
20
(f)
ignoring this Act, subsection (4) of section 381 of ICTA would not
have prevented relief under that section being available for the 2007-
08 loss.
      (2)
Section 74 of this Act is not to apply in relation to the 2007-08 loss.
      (3)
This paragraph applies to professions and vocations as it applies to trades.
25
Sideways relief: trade leasing allowances given to individuals
23    (1)
This paragraph applies if—
(a)
a person makes a loss (“the 2006-07 loss”) in a trade in the tax year
2006-07,
(b)
relief under section 380 or 381 of ICTA is not available for the 2006-
30
07 loss (or for part of it) because of section 384(6) of that Act,
(c)
the person makes a loss (“the 2007-08 loss”) in the trade in the tax
year 2007-08,
(d)
(apart from this paragraph) relief under section 64 or 72 of this Act is
not available for the 2007-08 loss (or for part of it) because of section
35
75 of this Act,
(e)
the basis period for the tax year 2007-08 overlaps with the tax year
2006-07, and
(f)
ignoring this Act, section 384(6) of ICTA would not have prevented
relief under section 380 or 381 of that Act being available for the 2007-
40
08 loss (or for the part).
      (2)
Section 75 of this Act is not to apply in relation to the 2007-08 loss (or to the
part).

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 5 — Losses (except losses on disposal of shares)
615

Sideways relief: dealings in commodity futures
24
Section 81 does not apply if the arrangements mentioned in that section were
made wholly before 6 April 1976.
Terminal trade loss relief
25    (1)
This paragraph applies for the purposes of section 89 if the final tax year is
5
the tax year 2007-08, 2008-09 or 2009-10.
      (2)
Relief for the terminal losses in question can be given for one or more of the
tax years 2004-05, 2005-06 and 2006-07 (depending on which tax year is the
final tax year).
      (3)
If relief for the terminal losses is to be given for one or more of those tax
10
years, the relief is given in the way in which it would have been given had it
been given under section 388 of ICTA ignoring this Act (and section 91 of
this Act is to be read accordingly).
Post-cessation trade loss relief and post-cessation property relief
26
The events covered by section 98(5) (including as applied by section
15
125(6)(b)) include events—
(a)
which occur before the tax year 2007-08, and
(b)
in relation to which no claim is made under section 109A of ICTA.
Reliefs for limited partners not to exceed contribution to the firm
27    (1)
The relief covered by section 104(5) includes—
20
(a)
relief given or allowed for a loss as a result of section 141 of the
Capital Allowances Act 1990 (c. 1) or section 380 or 381 of ICTA, and
(b)
the treatment of a loss as an allowable loss by virtue of section 72 of
FA 1991.
      (2)
The income covered by section 104(6) includes amounts treated as received
25
as a result of the application of section 74 of FA 2005.
Reliefs for members of LLPs not to exceed contribution to the LLP
28    (1)
The relief covered by section 107(6) includes—
(a)
relief given for a loss as a result of section 380 or 381 of ICTA, and
(b)
the treatment of a loss as an allowable loss by virtue of section 72 of
30
FA 1991.
      (2)
The income covered by section 107(7) includes amounts treated as received
as a result of the application of section 74 of FA 2005.
Members of LLPs: carry-forward of losses
29    (1)
The amounts of loss covered by section 109(1)(b) include amounts of loss
35
which, as a result of section 117 of ICTA (as applied by section 118ZB of that
Act), are not—
(a)
relieved under section 380 or 381 of ICTA, or
(b)
treated as an allowable loss by virtue of section 72 of FA 1991.

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 5 — Losses (except losses on disposal of shares)
616

      (2)
In section 109(3)—
(a)
references to section 109 include references to section 118ZD of
ICTA,
(b)
references to sideways relief include references to relief under
section 380 or 381 of ICTA, and
5
(c)
references to capital gains relief include references to the treatment
of a loss as an allowable loss by virtue of section 72 of FA 1991.
Reliefs for non-active partners not to exceed contribution to the firm
30    (1)
The relief covered by section 110(5) includes—
(a)
relief given for a loss as a result of section 380 or 381 of ICTA, and
10
(b)
the treatment of a loss as an allowable loss by virtue of section 72 of
FA 1991.
      (2)
Sub-paragraph (1) is subject to paragraph 33.
      (3)
The income covered by section 110(6) includes amounts treated as received
as a result of the application of section 74 of FA 2005.
15
Non-active partners: carry-forward of losses
31    (1)
The amounts of loss covered by section 113(1)(b) include amounts of loss
which, as a result of section 118ZE of ICTA, are not—
(a)
relieved under section 380 or 381 of ICTA, or
(b)
treated as an allowable loss by virtue of section 72 of FA 1991.
20
      (2)
In section 113(4)—
(a)
references to section 113 include references to section 118ZI of ICTA,
(b)
references to sideways relief include references to relief under
section 380 or 381 of ICTA, and
(c)
references to capital gains relief include references to the treatment
25
of a loss as an allowable loss by virtue of section 72 of FA 1991.
      (3)
In section 113(8) the reference to section 109 includes a reference to section
118ZD of ICTA.
Restriction on reliefs for non-active partners: pre-10 February 2004 events
32
In Chapter 3 of Part 4 any reference to an early tax year in relation to an
30
individual carrying on a trade does not include a tax year the basis period
for which ends before 10 February 2004.
33    (1)
Sub-paragraphs (2) to (9) set out relief which is not covered by section 110(5)
(relevant relief).
      (2)
Relief is not covered if it is given for a loss made in a trade in a tax year the
35
basis period for which ends before 10 February 2004.
      (3)
Sub-paragraphs (4) to (9) apply if the individual carried on a trade in a tax
year the basis period for which includes 10 February 2004.
      (4)
Relief given for a loss made in the trade is not covered so far as the loss
derives from an allowance or deduction within sub-paragraph (5).
40
      (5)
An allowance or deduction is within this sub-paragraph if it is—

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 5 — Losses (except losses on disposal of shares)
617

(a)
a capital allowance in respect of expenditure incurred before 10
February 2004 which is treated as an expense of the trade, or
(b)
a deduction in respect of expenditure incurred before 10 February
2004 under section 42(1) of F(No.2)A 1992 or any of sections 138 to
140 of ITTOIA 2005.
5
      (6)
For the purposes of sub-paragraph (4) the amount of a loss that derives from
an allowance or deduction within sub-paragraph (5) is determined on a just
and reasonable basis.
      (7)
Relief given for a loss made in the trade is not covered so far as it is given for
the pre-announcement allowance in relation to the trade.
10
      (8)
“Pre-announcement allowance” is to be read in accordance with section
118ZJ(4) and (6) to (8) of ICTA.
      (9)
For that purpose, references to the first restricted year are to be read as
references to the tax year mentioned in sub-paragraph (3).

If sub-paragraph (3) covers more than one tax year, the first restricted year
15
is the first of the tax years covered.
     (10)
Sub-paragraph (11) applies for the purpose of applying the restriction in
section 110(4) (relevant relief not to exceed contribution to the firm) in
relation to an individual if before 10 February 2004 the individual
contributed an amount of capital to the firm.
20
     (11)
That amount of capital is reduced (but not below nil)—
(a)
by the amount of relief (if any) to be left out of account as a result of
paragraph 32 or sub-paragraph (2), and
(b)
if relief given for a pre-announcement allowance in relation to a trade
is to be left out of account as a result of sub-paragraph (7) (or would
25
be so left out of account if any relief had been given for the
allowance), by the amount of the allowance.
     (12)
Regulations under section 114
34    (1)
The provision which may be made in regulations under section 114 does not
30
include provision affecting the amount of relief that may be given for a loss
made in a trade that is not a relevant loss in relation to the trade (as
determined in accordance with section 118ZO of ICTA).
      (2)
The repeal by this Act of sections 118ZN and 118ZO of ICTA (or any
provision inserting or amending, or affecting the application of, those
35
sections) does not affect the power of the Commissioners for Her Majesty’s
Revenue and Customs to make regulations under section 118ZN having
effect before the tax year 2007-08.
Application of existing regulations under sections 114 and 735
35    (1)
After the commencement of sections 114 and 735, the Partnership
40
(Restrictions on Contributions to a Trade) Regulations 2005 (S.I. 2005/2017)
have effect as if made under those sections.
      (2)
The Regulations so have effect subject to the following modifications.
      (3)
They have effect as if in regulation 2—

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 5 — Losses (except losses on disposal of shares)
618

(a)
in the definition of “bank” for “section 840A of ICTA” there were
substituted “section 925 of ITA 2007”,
(b)
for the definition of “contribution to the relevant trade” there were
substituted—
““capital contribution”—
5
(a)
for the purposes of section 114 of ITA 2007,
means the contribution to the firm for the
purposes of section 104 or 110 of that Act or
the contribution to the LLP for the purposes of
section 107 of that Act, and
10
(b)
for the purposes of section 735 of ITA 2007,
has the meaning given by section 734(3) of
that Act;”, and
(c)
for the definition of “ICTA” there were substituted—
““ITA 2007” means the Income Tax Act 2007;”.
15
      (4)
They have effect as if for “contribution to the relevant trade”, wherever
occurring, there were substituted “capital contribution”.
      (5)
They have effect as if—
(a)
in regulation 3(a) for “section 118ZN of ICTA” there were substituted
“section 114(1)(a) and (b) of ITA 2007”, and
20
(b)
in regulation 3(b) for the words from “section 119” to the end there
were substituted “section 730 of ITA 2007 as mentioned in section
735(2) of that Act”.
      (6)
They have effect as if in regulation 6(c) for “the trade” there were substituted
“a trade”.
25
Losses in an employment or office
36    (1)
This paragraph applies for the purposes of section 128 if the loss is made in
the tax year 2007-08.
      (2)
Relief for the loss can be given for the tax year 2006-07.
      (3)
Sub-paragraphs (4) and (5) apply if relief for the loss is claimed for the tax
30
year 2006-07.
      (4)
If relief is to be given, the relief is given in the way it would have been given
had it been given under section 380(1)(b) of ICTA ignoring this Act (and
section 65 of this Act is to be read accordingly).
      (5)
Section 72 of FA 1991 applies as if the relief had been claimed under section
35
380(1)(b) of ICTA.
Loss relief against miscellaneous income: Case VI losses
37    (1)
This paragraph applies if a person makes a loss in any transaction—
(a)
which was of such a nature that, if any profits had arisen from it, the
person would have been liable to income tax under Case VI of
40
Schedule D for any tax year before the tax year 2005-06, and
(b)
which did not fall within section 34, 35 or 36 of ICTA.

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
619

      (2)
So far as relief for the loss has not previously been given, the loss (or the
unused part of it) is to be treated as a loss available for deduction in
accordance with section 153.
Part 6
Losses on disposal of shares
5
Qualifying trading companies
38    (1)
In relation to shares issued before 17 March 2004, section 134(2)(a) applies
with the omission of sub-paragraph (iv) and the “and” immediately before
it.
      (2)
In relation to shares issued before 6 April 1998, section 134 applies with the
10
substitution for subsections (2) to (5) of—
“(2)
Condition A is that the company either—
(a)
is a trading company on the date of the disposal, or
(b)
has ceased to be a trading company at a time which is not
more than 3 years before that date and has not since that time
15
been an excluded company or an investment company.
(3)
Condition B is that the company either—
(a)
has been a trading company for a continuous period of 6
years ending on that date or at that time, or
(b)
has been a trading company for a shorter continuous period
20
ending on that date or at that time and has not since the
beginning of that period been an excluded company or an
investment company.
(4)
Condition C is that none of the shares in the company has been listed
on a recognised stock exchange at any time in the period—
25
(a)
beginning with the incorporation of the company or, if later,
12 months before the date on which the shares in question
were subscribed for, and
(b)
ending with the date on which the shares are disposed of.
(5)
Condition D is that the company has been UK resident throughout
30
the period from its incorporation until the date of the disposal.”
      (3)
In relation to shares issued before 7 March 2001, section 134(4)(b) applies
with the substitution for “at the relevant time” of “throughout the relevant
period”.
      (4)
For the purposes of sub-paragraph (3), shares that were issued—
35
(a)
on or after 5 April 1998, but
(b)
before 7 March 2001,

are treated as having been issued on or after 7 March 2001 in respect of any
part of the relevant period which falls on or after that date.
      (5)
Sub-paragraphs (1) to (4) apply in relation to section 576A of ICTA (which
40
makes corresponding provision for the purposes of corporation tax) as they
apply in relation to section 134.

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
620

Disposals of new shares
39    (1)
In relation to new shares issued before 6 April 2007, section 136(2) applies
with the omission of “This is subject to section 145(3).”
      (2)
In this paragraph “new shares” is to be read in accordance with section 145.
The trading requirement
5
40    (1)
In relation to shares issued before 6 April 2007, section 137 applies with the
following modifications—
(a)
the omission of subsection (2),
(b)
in subsection (5), the omission of paragraph (d)(ii) and the “or”
immediately before it, and
10
(c)
the omission of subsection (6).
      (2)
In relation to shares issued before 6 April 2000, section 137 applies with the
substitution for the definition of “research and development” in subsection
(7) of—
““research and development” means any activity which is
15
intended to result in a patentable invention (within the
meaning of the Patents Act 1977) or in a computer program.”
      (3)
Section 137 does not apply in relation to shares issued before 6 April 1998.
      (4)
Sub-paragraphs (1) to (3) apply in relation to section 576B of ICTA (which
makes corresponding provision for the purposes of corporation tax) as they
20
apply in relation to section 137.
Ceasing to meet trading requirement because of administration or receivership
41    (1)
In relation to shares issued before 17 March 2004, section 138 applies with
the following modifications—
(a)
in subsection (1), the omission of “merely” and the substitution for
25
“the company or any of its subsidiaries” of “its”,
(b)
in subsection (2)(b), the omission of “concerned”,
(c)
in subsection (3)(a), the omission of “or any of its subsidiaries”,
(d)
in subsection (3)(b), the omission of “or any of its subsidiaries”, and
(e)
in subsection (4), the omission of “is”, in the second place where it
30
occurs.
      (2)
In relation to an administration order the petition for which was presented
before 15 September 2003, section 138(2) applies with the substitution for
paragraph (a) of—
“(a)
the making of the order in question, and”.
35
      (3)
In relation to shares issued before 21 March 2000, section 138 applies with
the omission of subsections (1) and (2).
      (4)
In the application of sub-paragraph (3) on or after 21 March 2000, shares—
(a)
that were issued on or after 6 April 1998 but before 21 March 2000,
and
40
(b)
to which EIS relief or relief under Schedule 5B to TCGA 1992 was
attributable immediately before 21 March 2000,

are treated as having been issued on or after 21 March 2000.