Income and Corporation Taxes Act 1988

397 Restriction of relief in case of farming and market gardening. U.K.

(1) M1 Any loss incurred in a trade of farming or market gardening shall be excluded from section 380 if in each of the prior five years a loss [F1 , computed without regard to capital allowances,] was incurred in carrying on that trade; F2 . . . .

(2) Any loss incurred in any accounting period by a company in carrying on a trade of farming or market gardening shall be excluded from section 393(2) if a loss, computed without regard to capital allowances, was incurred in carrying on that trade in that accounting period, and in each of the chargeable periods wholly or partly comprised in the prior five years.

(3) Subsections (1) and (2) above shall not restrict relief for any loss or for any capital allowance [F3 in any case]—

(a) [F4 where] the whole of the farming or market gardening activities in the year next following the prior five years are of such a nature, and carried on in such a way, as would have justified a reasonable expectation of the realisation of profits in the future if they had been undertaken by a competent farmer or market gardener, but

(b) [F4 where], if that farmer or market gardener had undertaken those activities at the beginning of the prior period of loss, he could not reasonably have expected the activities to become profitable until after the end of the year next following the prior period of loss.

(4) Subsections (1) and (2) above shall not restrict relief where the carrying on of the trade forms part of, and is ancillary to, a larger trading undertaking.

(5) In this section—

• F5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• “chargeable period”, in relation to a company, means any accounting period F6 . . . ;

• “prior five years”—

  (a)

  in relation to a loss incurred in a year of assessment, means the last five years of assessment before that year, and

  (b)

  in relation to a loss incurred in a company’s accounting period, means the last five years before the beginning of the accounting period;

• “prior period of loss” means the prior five years, except that, if losses were incurred in the trade in successive years of assessment or chargeable periods amounting in all to a period longer than five years (and ending when the prior five years end), it means that longer period, and in applying this definition to a chargeable period of a company “losses” means losses computed without regard to capital allowances; and

• [F7 “farming” and “market gardening” shall be construed—

  (a)

  for income tax purposes, in accordance with the definitions in section 876 of ITTOIA 2005, and

  (b)

  for corporation tax purposes, in accordance with the definitions in section 832 but as if those definitions were not restricted to activities in the United Kingdom.]

(6) F8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) In ascertaining for the purposes of this section whether a loss was incurred in any part of the prior five years or earlier, the rules applicable to [F9 the calculation of the profits of a trade in Part 2 of ITTOIA 2005 or to] Case I of Schedule D shall be applied; and in this section “loss computed without regard to capital allowances” means, in relation to a chargeable period of a company, a loss so ascertained, [F10 but disregarding—

(a) any allowance or charge under the Capital Allowances Act (including enactments which under this Act are to be treated as contained in that Act); and

(b) any provision of that Act requiring allowances and charges to be treated as expenses and receipts of the trade].

(8) Subsections (1) and (2) above shall not restrict relief for any loss or capital allowance if the trade was set up and commenced within the prior five years, and, for the purposes of this subsection

[F11 (a) a trade shall be treated as discontinued, and a new trade set up, in any event which under any of the provisions of the Tax Acts is to be treated as equivalent to the permanent discontinuance or setting up of a trade; and

(b) without prejudice to paragraph (a), a trade shall be treated as discontinued, and a new trade set up, at any time when there is a change in the persons carrying on the trade which involves all of the persons carrying it on before the change permanently ceasing to carry it on.]

(9) For the purposes of subsection (8) above a trade shall not be treated as discontinued if, under section 343(2), it is not to be treated as discontinued for the purpose of capital allowances and charges.

(10) [F12 Where at any time there has been a change in the persons carrying on a trade, this section shall, notwithstanding subsection (8) above, apply as if]—

(a) a husband and his wife were the same person, F13 . . .

[F14 (ab) two civil partners of each other were the same person,]

(b) a husband or his wife were the same person as any company of which either the husband or the wife has control, or of which the two of them have control;[F15 and

(c) a civil partner of another were the same person as any company of which either of the civil partners has control, or of which the two of them have control;]

and accordingly relief from income tax or from corporation tax may be restricted under this section by reference to losses some of which are incurred in years of assessment and some, computed without regard to capital allowances, are incurred in a company’s chargeable periods.

In this subsection “control” has the same meaning as in Part XI.

Textual Amendments

F1 Words in s. 397(1) inserted (with effect in accordance with ss. 211(2), 218 of the amending Act) by Finance Act 1994 (c. 9), s. 214(3)(a) (with Sch. 20)

F2 Words in s. 397(1) repealed (with effect in accordance with ss. 211(2), 218(1)(b) of the repealing Act) by Finance Act 1994 (c. 9), s. 214(3)(b), Sch. 26 Pt. 5(24), Note 5(a) (with Sch. 20)

F3 Words in s. 397(3) substituted (with effect in accordance with s. 134(2) of the amending Act) by Finance Act 1996 (c. 8), Sch. 20 para. 27(a)

F4 Words in s. 397(3)(a)(b) substituted (with effect in accordance with s. 134(2) of the amending Act) by Finance Act 1996 (c. 8), Sch. 20 para. 27(b)

F5 S. 397(5): definition of "basis year" repealed (with effect in accordance with s. 579(1) of the repealing Act) by Capital Allowances Act 2001 (c. 2), Sch. 2 para 34(1)(a), Sch. 4 (with Sch. 3)

F6 S. 397(5): words in definition of "chargeable period" repealed (with effect in accordance with s. 579(1) of the repealing Act) by Capital Allowances Act 2001 (c. 2), Sch. 2 para 34(1)(b), Sch. 4 (with Sch. 3)

F7 S. 397(5): definitions of "farming" and "market gardening" substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 169(2) (with Sch. 2)

F8 S. 397(6) repealed (with effect in accordance with s. 579(1) of the repealing Act) by Capital Allowances Act 2001 (c. 2), Sch. 2 para. 34(2), Sch. 4 (with Sch. 3)

F9 Words in s. 397(7) inserted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 169(3) (with Sch. 2)

F10 Words in s. 397(7) substituted (with effect in accordance with s. 579(1) of the amending Act) by Capital Allowances Act 2001 (c. 2), Sch. 2 para. 34(3) (with Sch. 3)

F11 S. 397(8)(a)(b) substituted for words in s. 397(8) (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 169(4) (with Sch. 2)

F12 Words in s. 397(10) substituted (6.4.2005 with effect in accordance with s. 883(1) of the amending Act) by Income Tax (Trading and Other Income) Act 2005 (c. 5), Sch. 1 para. 169(5) (with Sch. 2)

F13 Word at the end of s. 397(10)(a) omitted (5.12.2005) by virtue of The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 71(2)(a)

F14 S. 397(10)(ab) inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 71(2)(a)

F15 S. 397(10)(c) and preceding word inserted (5.12.2005) by The Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 71(2)(b)

Marginal Citations

M1 Source—1970 s.180; 1986 s.56(7) Sch.13 2(5)