Income Tax Act 2007

Individuals in partnership claiming relief for licence-related trading losses U.K.

804 Charge to tax on income treated as received under section 805 U.K.

(1) Income tax is charged on income treated as received by an individual under section 805.

(2) Tax is charged under this section on the amount of the income treated as received in the tax year.

(3) The person liable for any tax charged under this section is the individual treated as receiving the income.

805 Partners claiming relief for licence-related trading losses U.K.

(1) This section applies if—

(a) an individual carries on a trade as a non-active partner during an early tax year,

(b) the individual makes a loss in the trade in that tax year for which the individual claims sideways relief or capital gains relief (a “relevant claim”),

(c) the loss derives to any extent from expenditure incurred in the trade in exploiting a licence acquired in carrying on the trade, and

(d) there is a relevant disposal of the licence.

(2) For the purposes of this section and section 806 there is a relevant disposal of the licence whenever the individual receives non-taxable consideration for—

(a) a disposal of the licence, or

(b) a disposal of a right to income under an agreement related to or containing the licence.

(3) If one or more chargeable events occur in any tax year, the individual is treated as receiving an amount of income in the tax year.

The income is treated as arising otherwise than as profits of the trade.

(4) For the purposes of this section and section 806 a chargeable event occurs whenever—

(a) there is a relevant disposal of the licence (if by that time the individual has made a relevant claim), or

(b) the individual makes a relevant claim (if by that time there has been a relevant disposal of the licence).

(5) For the purposes of this section and section 806 consideration is non-taxable if—

(a) (apart from section 804) it is not chargeable to income tax, and

(b) its receipt is not an exit event for the purposes of section 797.

(6) For the purposes of this section and section 806 it does not matter—

(a) if the individual (or anyone else) is still carrying on the trade when a chargeable event occurs,

(b) if the individual receives both non-taxable and taxable consideration for a relevant disposal of the licence, or

(c) if a relevant disposal of the licence is part of a larger disposal.

806 Calculation of amount of income treated as received by the individual U.K.

The amount of income treated under section 805 as received by the individual in the tax year is calculated by taking the following steps. Step 1

Calculate, at the end of the tax year, the total amount of the claimed losses (so far as relating to the licence) made by the individual in the trade in any early tax year during which the individual carried on the trade as a non-active partner.

Step 2

Calculate, at the end of the tax year, the total amount of the profits (so far as relating to the licence) made by the individual in the trade in any tax year.

Step 3

Deduct the total calculated at Step 2 from the total calculated at Step 1.

The result is “the net licence-related loss”.

If the net licence-related loss is nil or a negative figure—

(a) the income treated as received in the tax year is nil, and

(b) ignore Steps 4 and 5.

Step 4

Calculate, at the end of the tax year, the total amount or value of all non-taxable consideration received by the individual for relevant disposals (including consideration received in previous tax years).

Step 5

Deduct from—

(a) the net licence-related loss, or

(b) if less, the total calculated at Step 4,

the total amount of all income treated under section 805 as received by the individual in previous tax years as a result of chargeable events.

The result is the amount of the income treated as received in the tax year.

(If the result is a negative figure, the income is nil.)

807 Supplementary provision relating to calculation in section 806 U.K.

(1) This section applies for the purposes of section 806.

(2) For the purposes of Step 1, the amount of a loss made in a tax year that relates to the licence is so much of the loss in the tax year as derives from expenditure incurred in the trade in exploiting the licence.

(3) The amount of the loss that derives from such expenditure is determined on a just and reasonable basis.

(4) For the purposes of Step 1, a loss is a claimed loss if the individual has claimed sideways relief or capital gains relief for the loss.

(5) For the purposes of Step 2, the amount of profits made in a tax year that relates to the licence is so much of the individual's profits from the trade in the tax year as derives from income arising from an agreement related to or containing the licence.

(6) The amount of the profits that derives from such income is determined on a just and reasonable basis.

808 Meaning of “disposal of the licence” etc U.K.

(1) For the purposes of section 805 any reference to—

(a) a disposal of a licence acquired in carrying on a trade, or

(b) a disposal of a right to income under an agreement related to or containing a licence acquired in carrying on a trade (“a licence-related agreement”),

includes, in particular, any of events A to E.

(2) Event A is the revocation of the licence.

(3) Event B is the disposal, giving up or loss of—

(a) a right under the licence, or

(b) a right to income (or any part of any income) under a licence-related agreement,

by the individual or by a firm in which the individual is a partner.

It does not matter if the right is disposed of, given up or lost as part of a larger disposal, giving up or loss.

(4) Event C is the disposal, giving up or loss of the individual's interest in a firm that has the licence or a right to income under a licence-related agreement (including the dissolution of the firm).

(5) Event D is a default in the payment of income to which—

(a) the individual, or

(b) a firm in which the individual is a partner,

has a right under a licence-related agreement.

(6) Event E is a change in the individual's entitlement to any profits or losses relating to the licence the effect of which is that—

(a) the individual's share of any profits is reduced (including to nil), or

(b) the individual becomes entitled to a share, or a greater share, of any losses without becoming entitled to a corresponding share of profits.

(7) The changes covered by event E include cases where there is an agreement under which the individual is entitled—

(a) to a particular share of any profits or losses relating to the licence in a 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).

(8) In such cases the change in the individual's entitlement is treated for the purposes of section 805 as occurring at the beginning of the succeeding period.

(9) For the purposes of this section—

(a) references to any profits relating to the licence are to any profits deriving to any extent from income to which the individual has a right under a licence-related agreement, and

(b) references to any losses relating to the licence are to losses deriving to any extent from expenditure incurred in exploiting the licence.

809 Other definitions U.K.

(1) References in sections 805 and 806 to an individual carrying on a trade as a non-active partner in an early tax year are to be read as if those sections were contained in Chapter 3 of Part 4 (see, in particular, section [F1 103B]).

(2) But for that purpose, section [F2 103B(1)(b)] (which contains a requirement that the individual does not carry on the trade as a limited partner at any time during the tax year) is treated as if it were omitted.

(3) For the purposes of sections 805 to 808 an agreement is related to a licence if the agreement and licence are entered into under the same arrangement (regardless of when the agreement or licence is entered into).

(4) For the purposes of sections 805 to 808 an agreement, or part of an agreement, is not prevented from being a licence merely because it imposes an obligation to do a thing (rather than merely gives authority to do it).

References to exploiting a licence are to be read in that light.

Textual Amendments

F1 Word in s. 809(1) substituted (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 18(a), 21

F2 Word in s. 809(2) substituted (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 18(b), 21