BIM56620 - Film and audio products: avoidance: individual exit schemes: disposals

The exit charge on individuals benefited by film relief only applies where there has been a disposal of any rights of the individual to profits arising from the trade in which he has sustained a film related loss (see BIM56610). This disposal must take place on or after 10 December 2003.

Disposal of a right to profits is set very widely at FA04/S120. As well as taking its ordinary meaning it includes:

• the disposal, giving up or loss by the individual, or by a partnership of which he is a member, of any right to any part of any income where the right arises from the trade;
• any default in the payment of income to which the individual, or a partnership of which he is a member, has a right arising from the trade;
• a change in the individual's entitlement to any profits arising from the trade such that his share of the profits is reduced or extinguished;
• a change in the individual's entitlement to any losses arising from the trade such that he becomes entitled to a share, or a greater share, of the losses without becoming entitled to a corresponding share of profits;
• the disposal, giving up or loss of the individual's interest in a partnership that carries on the trade, including the dissolution of the partnership.

It does not matter whether the rights are disposed of alone or as part of a larger disposal.

Although these definitions are very wide, it has to be remembered that a disposal is only one of the conditions required for the exit charge to bite. An individual will also have to have either received non-taxable consideration for the disposal or claimed loss relief greater than the amount of his capital contribution: that is, more than he has actually lost. This will not normally occur if there is a genuine loss of income or default by the payer.