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.

127 Charge to income tax U.K.

(1) A chargeable event occurs whenever, on or after 10 February 2004, an individual who carries on or has carried on a trade in partnership—

(a) receives relevant consideration, if by the time he has received it he has (at any time) made a relevant claim; or

(b) makes a relevant claim, if by the time he has made it he has received relevant consideration.

(2) Where, as respects an individual, one or more chargeable events occurs in a year of assessment in relation to a licence (“the licence in question”)[F1 —

(a) the individual shall be treated as receiving in that year of assessment an amount of income equal to so much of the total consideration as does not exceed the chargeable amount;

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

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

(3) The “total consideration” means the total amount or value of the relevant consideration that by the end of that year of assessment has been received by the individual (whether or not in that year of assessment).

(4) To find the chargeable amount—

(a) take so much of the total consideration as does not exceed the net-licence related loss; and

(b) reduce the amount found under paragraph (a) (but not below nil) by the amount of any relevant consideration that by reason of this section has been treated as annual profits or gains of previous years of assessment.

(5) The net licence-related loss is the amount, computed as at the end of the year of assessment in which the chargeable event occurs, by which A exceeds B, where—

• A is the total of the individual’s claimed licence-related losses for qualifying years; and

• B is the total of his licence-related profits for any years of assessment.

(6) In subsections (3) and (4), the references to relevant consideration are to relevant consideration received on or after 10 February 2004 and relating to the licence in question (and where relevant consideration is received for a disposal of rights to income under any agreement related to or containing a licence, the consideration shall be regarded for the purposes of this section as relating to the licence).

(7) In this section “relevant consideration”, “relevant claim” and “qualifying year” have the meanings given by section 126.

Textual Amendments

F1 S. 127(2)(a)-(c) substituted for s. 127(2)(a)(b) and words (6.4.2005) by Income Tax (Trading and Other Income) Act 2005 (c. 5), s. 883(1), Sch. 1 para. 642 (with Sch. 2)