Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 4 — Loss relief
Chapter 3 — Restrictions on trade loss relief for certain partners
56

(b)
as a result of section 110, sideways relief or capital gains relief has not
been given to the individual for amounts of loss made in the trade in
previous tax years.
(2)
A firm is within this subsection if the individual has carried on the trade as a
partner in the firm.
5
(3)
So far as they are not excluded by subsection (4), the amounts of loss
mentioned in subsection (1)(b) are treated as having been made in the current
tax year.
(4)
An amount of loss is excluded so far as—
(a)
as a result of this section, sideways relief or capital gains relief has been
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given to the individual for the amount for years prior to the current tax
year or would have been so given had a claim been made, or
(b)
other than as a result of this section, relief under the Income Tax Acts
has been given to the individual for the amount for years prior to the
current tax year or for the current tax year.
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(5)
For the purpose of applying sections 107 and 110 in relation to the amounts of
loss treated by this section as having been made in the current tax year—
(a)
the individual is treated as having carried on the trade during the
current tax year as a non-active partner in the firm, and
(b)
the current tax year is treated as if it were an early tax year in relation
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to the individual’s carrying on of the trade.
(6)
Subsection (7) applies if the individual—
(a)
made a contribution in the current tax year to the assets of the firm on
its winding up, but
(b)
did not carry on the trade as a partner in the firm in the current tax year.
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(7)
If this subsection applies—
(a)
the restrictions under sections 66 and 74(1) do not apply in relation to
the amounts of loss treated by this section as having been made in the
current tax year, and
(b)
in the application of this Chapter in relation to those amounts of loss,
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section 110(4) has effect as if the words “the basis period for” were
omitted.
(8)
In subsection (1)(b) the reference to amounts of loss does not include amounts
of loss which have been treated by section 109 as having been made in any
previous tax year.
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Regulations
114
Exclusion of amounts in calculating contribution to the firm or LLP
(1)
The Commissioners for Her Majesty’s Revenue and Customs may by
regulations provide that any amount of a specified description is to be
excluded in calculating—
40
(a)
the individual’s contribution to the firm for the purposes of section 104
or 110, or
(b)
the individual’s contribution to the LLP for the purposes of section 107.
(2)
“Specified” means specified in the regulations.

Income Tax Bill
Part 4 — Loss relief
Chapter 3 — Restrictions on trade loss relief for certain partners
57

(3)
The regulations may—
(a)
make provision having retrospective effect,
(b)
contain incidental, supplemental, consequential and transitional
provision and savings, and
(c)
make different provision for different cases or purposes.
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(4)
The provision which may be made as a result of subsection (3)(b) includes
provision amending or repealing any provision of an Act passed before FA
2005.
(5)
No regulations may be made under this section unless a draft of them has been
laid before and approved by a resolution of the House of Commons.
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Restrictions for film trades carried on in partnership
115
Restrictions on reliefs for firms exploiting films
(1)
This section applies if—
(a)
an individual carries on a trade as a partner in a firm at a time during a
tax year,
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(b)
the trade consists of or includes the exploitation of films,
(c)
the individual makes a loss in the trade in the tax year (“the affected tax
year”),
(d)
the individual does not devote a significant amount of time to the trade
in the relevant period for the affected tax year (see section 112),
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(e)
the affected tax year is the one in which the individual first started to
carry on the trade or is one of the next 3 tax years, and
(f)
a relevant agreement existed at a time during the affected tax year
which guaranteed the individual an amount of income (see subsections
(5) to (9)).
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(2)
Sideways relief for the loss is not available to the individual, except against any
of the individual’s income which consists of profits of the trade.
(3)
Capital gains relief for the loss is not available to the individual.
(4)
But see section 116 (exclusion from restrictions for certain film expenditure).
(5)
An agreement is relevant if—
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(a)
it is an agreement made with a view to the individual’s carrying on the
trade,
(b)
it is an agreement made in the course of the individual’s carrying it on,
or
(c)
it is related to an agreement falling within paragraph (a) or (b).
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(6)
An agreement is relevant whether or not the individual is or may be required
under the agreement to contribute an amount to the trade.
(7)
Agreements are related to one another if they are entered into under the same
arrangement (regardless of when either agreement is entered into).
(8)
A relevant agreement guarantees the individual an amount of income if it (or
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any part of it) is designed to secure the receipt by the individual of that amount
(or at least that amount) of income.
(9)
It does not matter when the amount of income is (or is to be) received.

Income Tax Bill
Part 4 — Loss relief
Chapter 4 — Losses from property businesses
58

(10)
In this section “film” is to be read in accordance with paragraph 1 of Schedule
1 to the Films Act 1985 (c. 21).
116
Exclusion from restrictions under section 115: certain film expenditure
(1)
The restrictions under section 115 do not apply to so much of the loss (if any)
as derives from unrestricted film expenditure.
5
(2)
Expenditure is unrestricted film expenditure if—
(a)
it is deducted under a relevant film provision for the purposes of the
calculation required by section 849 of ITTOIA 2005 (calculation of
firm’s profits or losses), or
(b)
it is incidental expenditure which (although not deducted under a
10
relevant film provision) is incurred in connection with the production
of a film, or the acquisition of the original master version of a film, in
relation to which expenditure is so deducted.
(3)
Expenditure is incidental if it is on management, administration or obtaining
finance.
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(4)
The following are determined on a just and reasonable basis—
(a)
the amount of the loss that derives from unrestricted film expenditure,
and
(b)
the extent to which expenditure is within subsection (2)(b).
(5)
In this section—
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“the acquisition of the original master version of a film” has the same
meaning as in Chapter 9 of Part 2 of ITTOIA 2005 (see sections 130 and
132 of that Act),
“film” is to be read in accordance with paragraph 1 of Schedule 1 to the
Films Act 1985, and
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“a relevant film provision” means any one of sections 137 to 140 of ITTOIA
2005 (relief for certified master versions of films).
Chapter 4
Losses from property businesses
Introduction
30
117
Overview of Chapter
(1)
This Chapter—
(a)
provides for losses made in a UK property business or overseas
property business in a tax year to be carried forward for deduction
from profits in subsequent tax years (see sections 118 and 119),
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(b)
provides in limited circumstances for relief against general income for
losses made in a UK property business or overseas property business
(see sections 120 to 124), and
(c)
provides for relief for certain post-cessation payments and events in
connection with a UK property business (see section 125).
40
(2)
This Chapter also makes provision for a UK property business which consists
of, or so far as it includes, the commercial letting of furnished holiday

Income Tax Bill
Part 4 — Loss relief
Chapter 4 — Losses from property businesses
59

accommodation to be treated as a trade for the purposes of this Part (see section
127).
Carry-forward property loss relief
118
Carry forward against subsequent property business profits
(1)
Relief is given to a person under this section if the person—
5
(a)
carries on a UK property business or overseas property business (alone
or in partnership) in a tax year, and
(b)
makes a loss in the business in the tax year.
(2)
The relief is given by deducting the loss in calculating the person’s net income
for subsequent tax years (see Step 2 of the calculation in section 23).
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(3)
But a deduction for that purpose is to be made only from profits of the
business.
(4)
In calculating a person’s net income for a tax year, deductions under this
section from the profits of a business are to be made before deductions of any
other reliefs from those profits.
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(5)
No relief is to be given under this section so far as relief for the loss is given
under section 120.
(6)
This section needs to be read with section 119 (how relief works).
119
How relief works
This section explains how the deductions are to be made.
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The amount of the loss to be deducted at any step is limited in accordance with
section 25(4) and (5).
Step 1
Deduct the loss from the profits of the business for the next tax year.
Step 2
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Deduct from the profits of the business for the following tax year the amount
of the loss not previously deducted.
Step 3
Continue to apply Step 2 in relation to the profits of the business for subsequent
tax years until all the loss is deducted.
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Property loss relief against general income
120
Deduction of property losses from general income
(1)
A person may make a claim for property loss relief against general income if—
(a)
in a tax year (“the loss-making year”) the person makes a loss in a UK
property business or overseas property business (whether carried on
35
alone or in partnership), and
(b)
the loss has a capital allowances connection or the business has a
relevant agricultural connection.

Income Tax Bill
Part 4 — Loss relief
Chapter 4 — Losses from property businesses
60

(2)
The claim is for the applicable amount of the loss to be deducted in calculating
the person’s net income—
(a)
for the loss-making year, or
(b)
for the next tax year.

(See Step 2 of the calculation in section 23.)
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(3)
The claim must specify the tax year for which the deduction is to be made.
(4)
But if the applicable amount of the loss is not deducted in full in giving effect
to a claim for the specified tax year, the person may make a separate claim for
property loss relief against general income for the other tax year.
(5)
For this purpose “the other tax year” means the tax year which was not
10
specified in the claim already made, but which could have been specified.
(6)
This section needs to be read with—
(a)
section 121 (how relief works),
(b)
section 122 (meaning of “the applicable amount of the loss”),
(c)
section 123 (meaning of “the loss has a capital allowances connection”
15
and “the business has a relevant agricultural connection”), and
(d)
section 124 (supplementary).
121
How relief works
(1)
This subsection explains how the deductions are to be made.

The amount of the applicable amount of the loss to be deducted at any step is
20
limited in accordance with section 25(4) and (5).
Step 1

Deduct the applicable amount of the loss in calculating the person’s net income
for the specified tax year.
Step 2
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This step applies if the applicable amount of the loss has not been deducted in
full and the person makes a separate claim for the other tax year.

Deduct the part of the applicable amount of the loss not deducted at Step 1 in
calculating the person’s net income for the other tax year.
Other relief
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If the applicable amount of the loss has not been deducted in full at Steps 1 and
2, relief is given under section 118 for the part not so deducted.
(2)
There is a priority rule if—
(a)
a person makes a claim for property loss relief against general income
(“the prior claim”) in respect of a loss made in a tax year,
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(b)
the prior claim specifies the next tax year as the one for which the
deduction is to be made (“the relevant tax year”),
(c)
the person makes another claim for property loss relief against general
income in respect of a loss made in the relevant tax year, and
(d)
that other claim also specifies the relevant tax year as the one for which
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the deduction is to be made.
(3)
The rule is that priority is given to making deductions under the prior claim.