There are three conditions which need to be satisfied before an individual who has benefited from film relief will become subject to an exit charge. These conditions are that:
While both the disposal and exit event must take place on or after 10 December 2003, the losses can be sustained or claimed at any time, although they must be claimed for the charge to apply.
A chargeable event occurs as soon as all three conditions are
met. Often the disposal and exit event are likely to be
simultaneous. Providing a claim has already been made, then the
charge will apply at the time when the disposal and exit event
occur.
These rules mean that it is possible for a claim to loss
relief to itself be a chargeable event. This is necessary to
prevent an individual avoiding the charge by delaying the loss
claim until after the exit. This situation may be unlikely as, in
such an instance, the individual will probably not make the claim.
However, should a claim for loss relief be made and you have reason
to believe that an exit event and disposal have already taken place
or are planned, you should refer the case to Anti-avoidance Group
(Films) before giving effect to the claim (see
BIM56505).
It is quite possible that there may be more than one, or
indeed several, chargeable events in the same or different years of
assessment. There are several ways that this could happen. For
example consideration may be received in instalments, there may be
several claims or part disposals, or an individual’s capital
contribution may be reduced incrementally. It is therefore
important to maintain full records of any disposals, loss claims
and exit events for affected individuals. It is, of course, the
individual’s own responsibility in the first instance to self
assess where the exit charge applies.
In most cases, it will be much more beneficial for an
individual to remain within a tax deferral scheme and repay the
deferred tax over the duration of the scheme rather than incurring
an exit charge. Therefore, it is unlikely that the exit charge will
be applied in many cases. However, in order to monitor the
effectiveness of this charge, Anti-avoidance Group (Films) would
like to hear of any cases where the exit charge arises.
The chargeable amount is equal to the sum of:
Any amounts which have already been treated as consideration
under (a) cannot be included again in a later chargeable event.
The excess losses in (b) are reduced (but not below nil) by
any amount of excess loss that has previously been subject to an
exit charge.
Any amount of non-taxable consideration which is included in
the chargeable amount cannot also be included in calculating a
reduction in an individual’s capital contribution to the
trade.
Tax is charged on the individual in the year of assessment in
which the chargeable event (or events) takes place.
For 2003/04 and 2004/05, the individual is deemed to have
received an amount of income, equal to the chargeable amount, which
is chargeable to IT under Case VI Schedule D (see
BIM80000).
For 2005/06 and later years the individual is deemed to have
received an amount of income, equal to the chargeable amount, which
is chargeable to IT, but not to be treated as profits of the
trade.
Death does not lead to a charge to tax under the exit charge.
Even though an individual may be said to have lost his right to
income at the time of his death, the charge to tax cannot be
applied as it can only arise on the individual who has claimed the
losses. It cannot be raised on the executors or successors of a
deceased person.
However, as with any personal tax liability which comes into
existence before death, the executors or successors may be liable
for any chargeable amount which arose before the person died.
Examples showing how the exit charge is computed
in certain situations are included at
BIM56640.
