In order for an individual benefited by film relief (
BIM56610) to be subject to the exit
charge under FA04/S119, an ‘exit event’ must occur on
or after 10 December 2003.
An exit event is a defined term. It does not require that the
individual ceases carrying on the trade from which the losses
arose, or that he ceases to be a partner in a partnership, but can
include either of these. An exit event can also occur after a
person has ceased trading.
An exit event occurs when any of the following happens.
You should note that an exit event for the purposes of the exit
charge can occur when an individual makes a claim for sideways loss
relief if the amount of the relief claimed exceeds the amount of
capital he has contributed to the trade. In particular, it is not
relevant when the losses are sustained but when they are claimed.
It is therefore possible, for example in partnership loss
manipulation schemes (see
BIM56535), for losses sustained before
10 December 2003 to give rise to an exit event if those losses are
claimed on or after 10 December 2003.
The
losses claimed are the total of all film related
losses from the trade which are claimed under ICTA88/S380,
ICTA88/S381 and FA91/S72.
This is defined as any consideration received by the individual
which (apart from this exit charge) is not chargeable to IT on the
individual. Therefore it will include any consideration which would
otherwise be chargeable to capital gains tax, as well as any
consideration which is not subject to any tax (FA04/S123).
Consideration is not otherwise defined and therefore includes
any form of consideration received by or on behalf of the
individual. It can include money or money’s worth, including
the payment or assumption of a liability of an individual. For
example, this might include meeting the individual’s
liability under a loan taken out to contribute capital to a
partnership or trade.
However, it should be remembered that under the general rules
applicable to all master versions of films in F2A92/S40A, any sums
received from the disposal either of the master version of a film,
or of any rights in it, are deemed to be revenue receipts of the
trade, see
BIM56205. This will apply even if that
disposal is part of a larger disposal, for example if a partnership
sells its trade and all its trading assets to another person.
The consideration must be received in respect of the disposal
of rights to profits arising from the trade. It is not limited to
profits arising from exploitation of films. Normally it will be
apparent from the facts of the case whether a sum is received in
consideration for a disposal of rights to profits from the trade.
The definition of capital contribution, and in particular
reimbursement of a capital contribution (see BIM56630), are
designed to make it impossible to exit with a tax advantage by
ensuring that any amount received which is argued is not
consideration will nonetheless be caught as a reduction in the
amount of an individual’s capital contribution. Any case
where an individual:
should be referred to CT&VAT (Technical).
There is no cap on the amount of consideration taxable under
the exit charge (see
BIM56625). This differs from the exit
charge for non-active partners exploiting a licence which is capped
at the amount of losses claimed. However, the exit charge on
individuals benefited by film reliefs is always applied in
priority.
The amount of consideration received by an individual is the
gross amount received for the disposal (FA04/S122). Any amounts
deducted from the consideration in respect of any person agreeing
to or facilitating an exit event should be added back. In most exit
schemes, exiting individuals (usually partners) will be required to
pay a fee to facilitate their exit. This may be deducted from the
amount of consideration received – but should be added back
when computing the amount of consideration to be taken into account
in computing the exit charge.
