Income Tax (Trading and Other Income) Act 2005

Miscellaneous

859 Special provisions about farming and property income

(1) The rule in section 9(2) (farming trades) operates in relation to firms so that—

(a) all farming in the United Kingdom which a firm carries on, other than farming carried on as part of another trade, is treated as one trade, but

(b) the farming carried on by a firm which is treated as one trade is not included in any farming trade of any partner in the firm.

(2) Section 264 (UK property business) operates in relation to firms so that—

(a) every business and transaction mentioned in that section carried on, or entered into, by a firm constitutes the firm’s UK property business, but

(b) each business or transaction included in the firm’s UK property business is not included in any UK property business of any partner in the firm.

(3) Section 265 (overseas property business) operates in relation to firms so that—

(a) every business and transaction mentioned in that section carried on, or entered into, by a firm constitutes the firm’s overseas property business, but

(b) each business or transaction included in the firm’s overseas property business is not included in any overseas property business of any partner in the firm.

860 Adjustment income

(1) A change in the persons carrying on a trade from one period of account to the next does not prevent Chapter 17 of Part 2 (adjustment income) applying in relation to the trade so long as a person carrying on the trade immediately before the change continues to carry on the trade immediately after the change.

(2) A change in the persons carrying on a trade does not constitute the permanent cessation of the trade for the purposes of Chapter 17 of Part 2 so long as a person carrying on the trade immediately before the change continues to carry on the trade immediately after the change.

(3) In the case of a trade carried on by a firm the amount of any adjustment under Chapter 17 of Part 2 is calculated as if the firm were a UK resident individual.

(4) Each partner’s share of any amount of adjustment income is determined according to the firm’s profit-sharing arrangements for the 12 months ending immediately before the date on which the new basis was adopted.

(5) Any election under Chapter 17 of Part 2 must be made jointly by all the persons who have been members of the firm in that 12 month period.

(6) For the purposes of this section—

(a) “adjustment income” and “change of basis” have the same meaning as in Chapter 17 of Part 2,

(b) “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade, and

(c) references to the date on which a new basis was adopted are to the first day of the first period of account for which the new basis was adopted.

(7) Sections 849 to 856 do not apply so far as this section applies.

861 Sale of patent rights: effect of partnership changes

(1) This section applies if—

(a) a person (“the trader”) sells the whole or part of any patent rights in carrying on a trade, and

(b) the tax condition, the partnership condition and the non-cessation condition are met.

(2) The tax condition is that—

(a) tax is charged under section 587 on the proceeds of the sale or on any instalment of those proceeds, and

(b) by virtue of any of sections 590(2) or (4), 591(2) or 592(2), one sixth of the amount chargeable is charged in the tax year in which the trader receives the proceeds or the instalment and in each of the 5 subsequent tax years.

(3) The partnership condition is that—

(a) the trader is a firm at the time of the sale, or

(b) the trade is carried on in partnership at any time during the period beginning with the tax year in which the trader receives the proceeds or the instalment and ending with the last of the 5 subsequent tax years (“the tax spreading period”).

(4) The non-cessation condition is that—

(a) there is a change in the persons carrying on the trade during the tax spreading period, and

(b) a person who carried on the trade immediately before the change continues to carry on the trade immediately after the change.

(5) Any amounts chargeable under section 587 during the remainder of the tax spreading period are charged on the person or persons for the time being carrying on the trade.

(6) Such amounts are charged as if—

(a) that person or those persons had at all times been carrying on the trade, and

(b) everything done to or by the predecessors of that person or those persons in carrying on the trade had been done to or by that person or those persons.

862 Sale of patent rights: effect of later cessation of trade

(1) This section applies if—

(a) a person (“the trader”) sells the whole or part of any patent rights in carrying on a trade,

(b) by virtue of section 861 a charge under section 587 falls to be made on any person for the time being carrying on the trade in partnership,

(c) any such person permanently ceases to carry on the trade thereafter, and

(d) no person who carried on the trade immediately before the cessation continues to carry on the trade immediately after the cessation.

(2) Any amounts which would have been chargeable in later tax years are charged in the tax year in which the cessation occurs.

(3) Each partner’s share (or, if the partner is dead, the share of the partner’s personal representatives) of any additional amount chargeable under subsection (2) is determined in accordance with the firm’s profit-sharing arrangements immediately before the cessation.

(4) If an additional amount is chargeable under subsection (2), the person liable may elect that the amount of income tax payable should be reduced to the amount that would have been payable on the assumptions mentioned in subsection (5).

(5) The assumptions are—

(a) that subsection (2) does not apply, and

(b) that the total of the amounts that would have been charged in later tax years is charged in equal instalments in each of the tax years—

(i) beginning with the year in which the trader received the proceeds of the sale or instalment of those proceeds, and

(ii) ending with the year in which the cessation occurs.

(6) The election must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the cessation occurred.

(7) For the purposes of this section “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade.

863 Limited liability partnerships

(1) For income tax purposes, if a limited liability partnership carries on a trade, profession or business with a view to profit—

(a) all the activities of the limited liability partnership are treated as carried on in partnership by its members (and not by the limited liability partnership as such),

(b) anything done by, to or in relation to the limited liability partnership for the purposes of, or in connection with, any of its activities is treated as done by, to or in relation to the members as partners, and

(c) the property of the limited liability partnership is treated as held by the members as partnership property.

References in this subsection to the activities of the limited liability partnership are to anything that it does, whether or not in the course of carrying on a trade, profession or business with a view to profit.

(2) For all purposes, except as otherwise provided, in the Income Tax Acts—

(a) references to a firm include a limited liability partnership in relation to which subsection (1) applies,

(b) references to members of a firm include members of such a limited liability partnership,

(c) references to a company do not include such a limited liability partnership, and

(d) references to members of a company do not include members of such a limited liability partnership.

(3) Subsection (1) continues to apply in relation to a limited liability partnership which no longer carries on any trade, profession or business with a view to profit—

(a) if the cessation is only temporary, or

(b) during a period of winding up following a permanent cessation, provided—

(i) the winding up is not for reasons connected in whole or in part with the avoidance of tax, and

(ii) the period of winding up is not unreasonably prolonged.

This is subject to subsection (4).

(4) Subsection (1) ceases to apply in relation to a limited liability partnership—

(a) on the appointment of a liquidator or (if earlier) the making of a winding-up order by the court, or

(b) on the occurrence of any event under the law of a territory outside the United Kingdom corresponding to an event specified in paragraph (a).