Finance Act 2004

Individuals benefited by film relief U.K.

119 Individuals benefited by film relief U.K.

(1) This section applies if—

(a) an individual has made a claim under section 380 or 381 of the Taxes Act 1988 in respect of a film-related loss sustained by him in a trade carried on solely or in partnership (“a relevant claim”);

(b) there is a disposal on or after 10 December 2003 of a right of the individual to profits arising from the trade (a “relevant disposal”); and

(c) an exit event occurs.

(2) An “exit event”occurs when any of the following happens—

(a) on or after 10 December 2003 the individual receives any non-taxable consideration for a relevant disposal (whether or not he also receives any taxable consideration for it);

(b) on or after 10 December 2003 the losses claimed become greater than the individual’s capital contribution to the trade (whether because of a claim or a decrease in that capital contribution);

(c) on or after 10 December 2003 there is an increase in the amount (if any) by which the losses claimed exceed the individual’s capital contribution to the trade.

(3) A “chargeable event”occurs whenever—

(a) the individual makes a relevant claim, if by the time the claim has been made a relevant disposal and an exit event have occurred; or

(b) a relevant disposal occurs, if by the time it has occurred an exit event has occurred and the individual has made a relevant claim; or

(c) an exit event occurs, if by the time it has occurred a relevant disposal has occurred and the individual has made a relevant claim.

(4) Where a chargeable event occurs[F1 —

(a) the individual shall be treated as receiving at the time of that event an amount of income equal to the chargeable amount;

(b) that income (which shall not be treated as profits of the trade) shall be chargeable to income tax for the year of assessment in which the event occurs; and

(c) the individual shall be liable for any tax so chargeable.]

(5) The “chargeable amount”is an amount equal to the sum of the following (computed as at the time immediately after the chargeable event)—

(a) so much of the total amount or value of any consideration received by the individual for the relevant disposal (or, if there has been more than one, for relevant disposals) as is non-taxable; and

(b) the amount (if any) by which the losses claimed exceed the individual’s capital contribution to the trade;

but this is subject to section 122(2).

(6) For the purposes of subsection (1)(a) it is immaterial when the claim is made.

(7) It is immaterial whether the trade is still being carried on by the individual (or by anyone else) when a chargeable event occurs.

Textual Amendments

F1 S. 119(4)(a)-(c) substituted for s. 119(4)(a)(b) and words (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 640 (with Sch. 2)

120 “Disposal of a right of the individual to profits arising from the trade” U.K.

(1) The reference in section 119(1)(b) to a disposal of a right of the individual to profits arising from the trade includes, in particular—

(a) the disposal, giving up or loss by the individual, or by a partnership of which he is a member, of any right to any income (or any part of any income) where the right arises from the trade;

(b) any default in the payment of income to which the individual, or a partnership of which he is a member, has a right arising from the trade;

(c) a change in the individual’s entitlement to any profits arising from the trade such that his share of the profits is reduced or extinguished;

(d) a change in the individual’s entitlement to any losses arising from the trade such that he becomes entitled to a share, or a greater share, of the losses without becoming entitled to a corresponding share of profits;

(e) the disposal, giving up or loss of the individual’s interest in a partnership that carries on the trade, including the dissolution of the partnership.

(2) It is immaterial for the purposes of subsection (1)(a) whether the right is disposed of alone or as part of a larger disposal (and the references here to disposal include giving up or loss).

(3) If there is an agreement under which the individual is entitled—

(a) to a particular share of any profits or losses arising from the trade in a period, and

(b) to a different share of any profits or losses arising from the trade in a succeeding period (“the later period”),

his entitlement to the profits or losses arising in the later period shall be treated for the purposes of subsection (1)(c) and (d) as changing at the beginning of the later period; and in paragraphs (a) and (b) of this subsection a “share” of profits or losses includes a nil share.

121 “The losses claimed” and “the individual’s capital contribution to the trade” U.K.

(1) In section 119 “the losses claimed” means the total amount of any film-related losses sustained by the individual in the trade in any years of assessment, to the extent that they are losses—

(a) in respect of which the individual has (at any time) claimed relief under section 380 or 381 of the Taxes Act 1988; or

(b) that he has (at any time) claimed as allowable losses under section 72 of the Finance Act 1991 (c. 31).

[F2 less the amount of any relevant reclaimed relief.]

[F3 (1A) The “amount of any relevant reclaimed relief” means whichever is the lesser of—

(a) the total of any amounts which the individual has been treated as receiving under section 74 of the Finance Act 2005 (recovery of excess relief given under section 380 or 381 of the Taxes Act 1988) as a result of the application of that section of that Act to him in respect of losses sustained by him in the trade, and

(b) the total amount of any film-related losses sustained by the individual in the trade in any eligible years of assessment within the meaning of section 74 of the Finance Act 2005 to the extent that they are losses in respect of which he has at any time claimed relief as described in paragraph (a) or (b) of subsection (1) above.]

(2) In section 119 “the individual’s capital contribution to the trade” means (subject to section 122(1)) the amount that the individual has contributed to the trade as capital, less so much of that amount (if any) as—

(a) he has directly or indirectly drawn out or received back;

(b) he is entitled so to draw out or receive back;

(c) he has had directly or indirectly reimbursed to him by any person;

(d) he is entitled to require any person so to reimburse to him.

(3) In relation to a member of a limited liability partnership, the reference in subsection (2) to the amount contributed to the trade as capital shall be read as a reference to the amount contributed to the limited liability partnership as capital.

(4) In subsection (2) references to reimbursement include reimbursement effected by discharging or assuming all or part of a liability of the individual.

(5) Subsection (4) shall not be taken to limit what is to be treated for the purposes of subsection (2) as the receipt back or reimbursement of an amount.

(6) An amount drawn out or received back that would otherwise fall within subsection (2)(a), or an entitlement that would otherwise fall within subsection (2)(b), shall be treated as not so falling if the amount drawn out or received back is chargeable to income tax as profits of the trade.

[F4 (7) This section is subject to provision made by regulations under section 122A (partners: meaning of “capital contribution to the trade”).]

Textual Amendments

F2 Words in s. 121(1) inserted (retrospective to 2.12.2004) by Finance Act 2005 (c. 7), s. 78(3)(a)(4)

F3 S. 121(1A) inserted (retrospective to 2.12.2004) by Finance Act 2005 (c. 7), s. 78(3)(b)(4)

F4 S. 121(7) inserted (retrospective to 2.12.2004) by Finance Act 2005 (c. 7), s. 79(2)(4)

122 Computing the chargeable amount U.K.

(1) Where a chargeable event occurs, anything treated for the purposes of section 119(5)(a) as consideration received by the individual for a relevant disposal shall not also be deducted under section 121(2)(a) to (d) in computing the individual’s capital contribution to the trade for the purposes of section 119(5)(b).

(2) Where successive chargeable events occur as respects the individual and the trade—

(a) any consideration that is taken into account under section 119(5)(a) in computing the chargeable amount on an earlier chargeable event shall not be included again in computing the chargeable amount on a later chargeable event; and

(b) in computing the chargeable amount on a later chargeable event, any amount found under section 119(5)(b) shall be reduced (but not below nil) by the total of any amounts found under section 119(5)(b) (read with this paragraph) on earlier chargeable events.

(3) In computing the chargeable amount in any case, any consideration given to the individual for a relevant disposal shall be treated as if it had been received free of any deduction actually made from it in consideration of any person’s agreeing to or facilitating a relevant disposal or exit event.

[F5 122A Partners: meaning of “capital contribution to the trade” U.K.

(1) This section applies for the purposes of section 119 where an individual makes a relevant claim (within the meaning of subsection (1)(a) of that section) in respect of a film-related loss sustained by him in a trade carried on in partnership (“the relevant trade”).

(2) The Board may by regulations provide that for the purposes of determining under section 119—

(a) whether an exit event within the meaning of subsection (2)(b) or (c) of that section occurs on or after 2nd December 2004, and

(b) where such an event occurs on or after that date, the chargeable amount within the meaning of subsection (5) of that section,

any amount of a description specified in the regulations is to be excluded when computing the amount of the individual’s capital contribution to the relevant trade.

(3) Regulations under this section may—

(a) make provision having effect before the date on which the regulations are made,

(b) make such supplementary, incidental, consequential or transitional provision as appears to the Board to be necessary or expedient, and

(c) make different provision for different cases or different purposes.

(4) The provision mentioned in subsection (3)(b) may include provision amending or repealing any provision of an Act passed before the Finance Act 2005.

(5) No regulations may be made under this section unless a draft has been laid before and approved by a resolution of the House of Commons.]

Textual Amendments

F5 S. 122A inserted (retrospective to 2.12.2004) by Finance Act 2005 (c. 7), s. 79(1)(4)

123 “Film-related losses” and “non-taxable consideration” U.K.

(1) For the purposes of sections 119[F6 , 121 and 122A] a loss is a “film-related loss”if the computation of profits or losses that it results from is made in accordance with [F7 any provision of Chapter 9 of Part 2 of the Income Tax (Trading and Other Income) Act 2005.]

(2) References in section 119 to “non-taxable” consideration are to consideration that (apart from section 119) is not chargeable to income tax; and the reference to “taxable” consideration is to be read accordingly.

Textual Amendments

F6 Words in s. 123(1) substituted (retrospective to 2.12.2004) by Finance Act 2005 (c. 7), s. 79(3)(4)

F7 Words in s. 123(1) substituted (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 641 (with Sch. 2)