Following comments received, HMRC have published Brief 19/07, which explains that two amendments will be made to the proposed legislation announced in Brief 18/07 (Tackling Avoidance - Individuals in partnership - restriction of loss relief). The amendments relate to the treatment of certain film-related losses.
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 ICTA 1988, ss 117, 118ZB and 118ZE.
- 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 ICTA 1988, ss 117, 118ZB, 118ZE and 118ZL.
The annual limit
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
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
Relevant film-related expenditure for these purposes is expenditure deducted under ITTOIA 2005, ss 137 to 140 and relevant incidental expenditure. These sections include the legislation formerly in Finance (No 2) Act 1992, s 42 and Finance (No 2) Act 1997, s 48).
Relevant incidental expenditure is incidental expenditure which (although not deducted under ITTOIA 2005, ss 137 to 140) 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.