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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Films and sound recordings: old regime for films: avoidance: individual exit schemes: disposals

S799 Income Tax Act 2007

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 BIM56520).

Disposal of a right to profits is defined very widely. 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 partner, of any right to any part of any income where the right arises from the trade;
  • 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;
  • 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.

It does not matter whether the rights are disposed of alone or as part of a larger disposal. If the disposal consists of a change in the entitlement to profits or losses from one period to the next, the disposal is deemed to occur at the beginning of the later period.

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.