Tackling avoidance - individuals in partnership - restriction of loss relief: film-related losses

  1. This Brief explains that two amendments will be made to the proposed legislation announced in Revenue and Customs Brief 18/07 following comments received. The amendments relate to the treatment of certain film-related losses.
  2. Brief 18/07 contained a technical note detailing proposed legislation to tackle avoidance based on abuse of sideways loss relief by non-active partners. The technical note explained two changes affecting the amount of trading losses for a tax year for which a non-active partner can claim sideways loss relief:
  • A ‘purpose test’ for capital contributions by a non-active partner to a partnership when applying the existing restrictions on sideways loss relief based on capital contributed in sections 117, 118ZB and 118ZE ICTA 1988.
  • An ‘annual limit’ of £25,000 (or, if lower, the amount of trading losses for that tax year for which a non-active partner can claim sideways loss relief after applying existing restrictions in sections 117, 118ZB, 118ZE and 118ZL ICTA 1988).

The annual limit

  1. The proposed annual limit of £25,000 (paragraphs 20 to 25 of the Technical Note) will not apply to losses derived from relevant film-related expenditure.

The purpose test

  1. The proposed ‘purpose test’ (paragraphs 18 and 19 of the Technical Note) will not apply to capital contributions made by a non-active partner to a partnership carrying on a film-related trade where the trading loss for which the partner is claiming sideways loss relief is derived solely from relevant film-related expenditure.

Relevant film-related expenditure

  1. Relevant film-related expenditure for these purposes is expenditure deducted under any of sections 137 to 140 ITTOIA 2005 and relevant incidental expenditure. These sections include the legislation formerly in section 42 Finance (No 2) Act 1992 and section 48 Finance (No 2) Act 1997).
  2. Relevant incidental expenditure is incidental expenditure which (although not deducted under sections 137 to 140 ITTOIA 2005) is incurred in connection with the production of a film, or the acquisition of the original master version of a film, in relation to which expenditure is deducted under those sections. Expenditure is incidental if it is on management, administration or obtaining finance.

Contacts

Questions about or comments on this note can be addressed to:

David Harris
CT & VAT Products & Processes
Reliefs & Incentives
3rd Floor
100 Parliament Street
London SW1A 2BQ

Telephone: 020 7147 2562
Email: David Harris

Technical issues:

Linda Grant
CT & VAT Products & Processes
Trading & Property Income
3rd Floor
100 Parliament Street
London SW1A 2BQ
Telephone: 020 7147 2628

Email: Linda Grant

Issued 7 March 2007