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HMRC internal manual

Business Income Manual

Films and sound recordings: old regime for films: avoidance: individual exit schemes: overview

S796-S803 Income Tax Act 2007

Exit schemes are schemes under which individuals who have entered into tax deferral arrangements (see BIM56505) seek to avoid having to repay the deferred tax. There are a wide variety of different structures used to try to achieve this. The most common schemes involve assigning the income stream - and responsibility for repaying the loan taken out by the investor to fund his investment - to someone else, who will not have to pay tax on that income. For example, schemes may use an offshore company in a tax haven, a trust, a company with losses which can be used to shelter the income, or even transfer the income stream to a spouse or minor child with no other income source. However, it is not possible to give a general description of an exit scheme other than that they all involve considerable complexity. Exit schemes do not necessarily involve an individual ceasing to carry on a trade or to be a member of a partnership - but rights to income are generally given up. Exit schemes are normally identified by their outcome, and this is also the way in which the counter legislation works.

The legislation raises a stand-alone charge to Income Tax where non-taxable consideration is received for a disposal of a right to profits from the trade or where losses claimed become greater than the contribution to the trade and there has been any disposal of rights to profits from the trade.

Reports to Anti-avoidance Group

We are aware that a few schemes have been marketed which try to persuade investors that they can make a tax-free exit in spite of the anti-avoidance legislation. It is therefore important to monitor carefully the returns of individuals who have benefited from film relief, and a report should be made to Anti-avoidance Group if an investor ceases to receive income from a film partnership where insufficient income has been declared to repay loans used to fund his investment.