Finance Act 2005 (c. 7)

Part 2 Income tax, corporation tax and capital gains tax

Chapter 6 Film relief

Companies benefited by film relief: exit charges

70 Valuation of the “rights to guaranteed income” and “disposed rights”

(1) For the purposes of section 67, the value immediately before the exit event of the rights to guaranteed income under the guaranteed income agreement is calculated as follows—

• Step 1

  Find the amount of each payment of income which at that time the guaranteed income agreement is designed to secure is received by C but which at that time has not been brought into account for the relevant trade by C (“RI”).

• Step 2

  For each payment find the day for payment which the agreement is designed to secure (“the payment day”).

• Step 3

  For each payment find the number of days in the period (“P”) which—

  (a)

  begins with the day on which the exit event occurs, and

  (b)

  ends with the payment day.

• Step 4

  Calculate the net present value of each payment (“NPVRI”) by applying the following formula—

  

  where—

  • T is the temporal discount rate, and

  • i is the number of days in P divided by 365.

• Step 5

  Add together each amount of NPVRI determined under step 4.

(2) For the purposes of section 68, in relation to a relevant disposal, the value of the disposed rights immediately before the disposal is calculated as follows—

• Step 1

  Find the amount of each payment of income which at that time the guaranteed income agreement is designed to secure is received by C by virtue of the disposed rights but which at that time has not been brought into account for the relevant trade by C (“DI”).

• Step 2

  For each payment find the day for payment which the agreement is designed to secure (“the payment day”).

• Step 3

  For each payment find the number of days in the period (“P”) which—

  (a)

  begins with the day on which the relevant disposal occurs, and

  (b)

  ends with the payment day.

• Step 4

  Calculate the net present value of each payment (“NPVDI”) by applying the following formula—

  

  where—

  • T is the temporal discount rate, and

  • i is the number of days in P divided by 365.

• Step 5

  Add together each amount of NPVDI determined under step 4.

(3) For the purposes of this section the “temporal discount rate” is 3.5% or such other rate as may be specified by regulations made by the Treasury.

(4) Regulations under subsection (3) may make such provision as is mentioned in subsection (3)(b) to (f) of section 178 of FA 1989 (power of Treasury to set rates of interest).

(5) Subsection (5) of that section (power of Inland Revenue to specify rate by order in certain circumstances) applies in relation to regulations under subsection (3) as it applies in relation to regulations under that section.

(6) This section is deemed to have come into force on 2nd December 2004.