The legislation to counter the film partnership guaranteed
income schemes described at
BIM56565 is at FA04/S125, which
introduced new sections into ICTA88 at ICTA88/S118ZL and S118ZM.
The legislation applies to:
See
BIM56540 for what is meant by a
non-active partner.
Where these conditions apply, any trading losses sustained by
the partner in any of those years of assessment can only be
utilised against profits arising from the trade, unless those
losses derive from
exempt expenditure (see
BIM56575). The effect of this is that
sideways loss relief is not available against an individual’s
other income and gains under ICTA88/S380, ICTA88/S381 or FA91/S72,
so the individual will only be able to utilise losses against the
deferred income arising from the partnership and therefore not be
able to obtain a tax deferral – except where losses derive
from exempt expenditure.
Note that a trade which includes the
exploitation of films is wider than a trade that
includes the exploitation of the master versions of films which is
required for application of the special rules for deduction of
expenditure incurred on the production or acquisition of the master
version of a film. It includes any trade which includes the
exploitation of films to any extent. Film takes the same meaning as
that in Schedule 1 to the Films Act 1985 – namely ‘any
record, however made, of a sequence of visual images, which is a
record capable of being used as a means of showing that sequence as
a moving picture’.
A
relevant agreement means any agreement which is
either made with a view to the individual carrying on the trade
(that is, before he does so), or an agreement made whilst he is
carrying it on. It includes an agreement under which he is or may
be required to contribute an amount to the trade (for example, as
his capital contribution). An agreement will commonly be made at
partnership level, and the individual partner will be allocated a
share of profits (or losses) arising under the agreement. Such an
agreement is nonetheless a relevant agreement for application of
these rules to the individual partner.
An agreement
guarantees an individual an amount of income if
the agreement, or any part of it, is designed to secure the receipt
by the individual of that amount, or at least that amount of
income. It does not matter when that income would be received under
the agreement – that is, the income may arise (as it does in
tax deferral schemes) many years later.
This definition is intentionally widely drawn: it does not
imply certainty, but merely that arrangements have been put in
place which are designed to ensure that the individual will receive
at minimum, a specified amount of income. Normally in a tax
deferral arrangement, such as a sale and leaseback, a minimum
income is required in order to obtain and underwrite a loan from a
bank. A good test of whether an agreement is designed to secure an
amount of income is whether it is possible to calculate the minimum
amount of income that will be received with a reasonable degree of
accuracy. Alternatively, an agreement should be taken to guarantee
an amount of income where payments are linked to bank interest
rates: that is, where minimum income is set at a variable but
sufficient level to ensure a person can meet interest on a loan.
It should be noted that the legislation does not specify a
minimum amount of guaranteed income for the provisions to apply.
Where
any amount of income from the trade is guaranteed
to the partner under a relevant agreement, the restrictions apply
to
all non-exempt trading expenditure and losses.
These restrictions apply to:
See BIM56575 for an explanation of what is meant by losses derived from expenditure incurred.
