Finance Act 2004 (c. 12)

Part 3 U.K. Income tax, corporation tax and capital gains tax

Chapter 9 U.K. Avoidance involving loss relief or partnership

Individuals in partnership: exit charge U.K.

126 Losses derived from exploiting licence: introductory U.K.

(1) Section 127 (charge to income tax) applies in relation to an individual who carries on or has carried on a trade in partnership if—

(a) there is a disposal on or after 10 February 2004 of—

(i) any licence acquired in carrying on the trade; or

(ii) any rights to income under any agreement that is related to or contains such a licence;

(b) the individual receives any non-taxable consideration for the disposal (“relevant consideration”); and

(c) he has made a claim under section 380 or 381 of the Taxes Act 1988 in respect of a licence-related loss sustained in the trade in a qualifying year (“a relevant claim”).

(2) A “licence-related loss” means a loss that derives to any extent from expenditure incurred in the trade in exploiting the licence.

(3) In relation to an individual who carried on the trade at any time before 26 March 2004, the reference in subsection (2) to expenditure does not include expenditure incurred before 10 February 2004.

(4) A “qualifying year” means a year of assessment at any time during which the individual carried on the trade in partnership which is also—

(a) the year of assessment in which the trade is first carried on by him or any of the next three years of assessment; and

(b) a year of assessment in which he did not devote a significant amount of time to the trade (within the meaning given by section 130).

(5) The reference in subsection (1)(b) to “non-taxable” consideration is to consideration—

(a) that (apart from section 127) is not chargeable to income tax; and

(b) whose receipt is not an exit event for the purposes of section 119;

and it is immaterial for the purposes of subsection (1)(b) whether the non-taxable consideration is the only consideration received by the individual for the disposal.

(6) For the purposes of this section and sections 127 to 129, an agreement is related to a licence if they are entered into in pursuance of the same arrangement (regardless of the date on which either is entered into).

(7) For the purposes of this section and sections 127 to 129 an agreement, or part of an agreement, that imposes an obligation to do a thing (rather than merely conferring authority to do it) is not for that reason to be regarded as not being a licence; and references to “exploiting” a licence shall be construed accordingly.