Miscellaneous and supplemental
215Treatment of partnerships
(1)For section 111 of the Taxes Act 1988 there shall be substituted the following section—
“111Treatment of partnerships
(1)Where a trade or profession is carried on by two or more persons in partnership, the partnership shall not, unless the contrary intention appears, be treated for the purposes of the Tax Acts as an entity which is separate and distinct from those persons.
(2)So long as a trade or profession (“the actual trade or profession”) is carried on by persons in partnership, and each of those persons is chargeable to income tax, the profits or gains or losses arising from the trade or profession shall be computed for the purposes of income tax in like manner as if the partnership were an individual.
(3)A person’s share in the profits or gains or losses of the partnership which for any period are computed in accordance with subsection (2) above shall be determined according to the interests of the partners during that period; and income tax shall be chargeable or, as the case may require, loss relief may be claimed as if—
(a)that share derived from a trade or profession (“the deemed trade or profession”) carried on by the person alone;
(b)the deemed trade or profession was set up and commenced by him at the time when he became a partner or, where the actual trade or profession was previously carried on by him alone, the time when the actual trade was set up and commenced; and
(c)the deemed trade or profession is permanently discontinued by him at the time when he ceases to be a partner or, where the actual trade or profession is subsequently carried on by him alone, the time when the actual trade or profession is permanently discontinued.
(4)Where—
(a)subsections (2) and (3) above apply in relation to the profits or gains or losses of a trade or profession carried on by persons in partnership, and
(b)other income accrues to those persons by virtue of their being partners,
that other income shall be chargeable to tax by reference to the same periods as if it were profits or gains arising from the trade or profession.
(5)Subsections (1) to (3) above apply, with the necessary modifications, in relation to a business as they apply in relation to a trade.”
(2)In section 114 of that Act (special rules for computing profits or losses), after the word “trade”—
(a)in subsection (1), in each place where it occurs;
(b)in subsection (2); and
(c)in subsection (3), in the first place where it occurs,
there shall be inserted the words “profession or business”.
(3)The following provisions of that Act shall cease to have effect, namely—
(a)in section 114, in subsection (3), the words from “except that” to the end, and subsection (4);
(b)in section 115 (provisions supplementary to section 114), subsections (1) to (3) and (6); and
(c)in section 277 (personal reliefs: partnerships), in subsection (1), the words “Subject to subsection (2) below”, paragraph (c) and the word “and” immediately preceding that paragraph, and subsection (2).
(4)This section and section 216 below—
(a)except in their application to partnerships mentioned in subsection (5) below, have effect as respects the year 1997-98 and subsequent years of assessment, and
(b)in its application to partnerships so mentioned, have effect as respects the year 1994-95 and subsequent years of assessment.
(5)The partnerships referred to in subsection (4) above are partnerships—
(a)whose trades, professions or businesses are set up and commenced on or after 6th April 1994; and
(b)which are not partnership firms to which section 112(3) of the Taxes Act 1988 (partnerships controlled abroad) applies.
216Effect of change in ownership of trade, profession or vocation
(1)For subsection (2) of section 113 of the Taxes Act 1988 (effect of change in ownership of trade, profession or vocation) there shall be substituted the following subsection—
“(2)Where—
(a)there is such a change as is mentioned in subsection (1) above, and
(b)a person engaged in carrying on the trade, profession or vocation immediately before the change continues to be so engaged immediately after it,
subsection (1) above shall not apply to treat the trade, profession or vocation as discontinued or a new one as set up and commenced.”
(2)Subsections (3) to (5) of that section and, in subsection (6) of that section, the words from “and where” to the end shall cease to have effect.
(3)The following provisions of that Act shall cease to have effect, namely—
(a)in section 96 (farming and market gardening: relief for fluctuating profits), in subsection (6) the words from “except that” to the end;
(b)in section 380 (set-off against general income), subsection (3);
(c)in section 381 (further relief in early years of trade), subsection (6);
(d)in section 384 (restrictions on right of set-off), subsection (5);
(e)in section 385 (carry-forward against subsequent profits), subsections (2) and (5);
(f)in section 386 (carry-forward where business transferred to a company), subsection (4); and
(g)in section 389 (supplementary provisions relating to carry-back of terminal losses), subsection (3).
(4)For subsection (4) of section 389 of that Act, there shall be substituted the following subsection—
“(4)For the purposes of this section and section 388 a trade, profession or vocation shall be treated as discontinued, and a new one as set up and commenced, when it is so treated for the purposes of section 111 or 113.”
(5)Subsection (3)(a) above—
(a)except in its application to a trade set up and commenced on or after 6th April 1994, has effect where the first of the two years of assessment to which the claim relates is the year 1996-97 or any subsequent year, and
(b)in its application to a trade so set up and commenced, has effect where the first of those two years of assessment is the year 1995-96 or any subsequent year.
217Double taxation relief in respect of overlap profits
(1)In subsection (1) of section 804 of the Taxes Act 1988 (relief against income tax in respect of income arising in years of commencement), for the words “any income arising in the years of commencement” there shall be substituted the words “any income which is an overlap profit”.
(2)For subsection (5) of that section there shall be substituted the following subsections—
“(5)Subsections (5A) and (5B) below apply where—
(a)credit against income tax for any year of assessment is allowed by virtue of subsection (1) above in respect of any income which is an overlap profit (“the original income”), and
(b)the original income or any part of it contributes to an amount which, by virtue of section 63A(1) or (3), is deducted in computing the profits or gains of a subsequent year of assessment (“the subsequent year”).
(5A)The following shall be set off one against the other, namely—
(a)the difference between—
(i)the amount of the credit which, under this Part (including this section), has been allowed against income tax in respect of so much of the original income as contributes as mentioned in subsection (5) above, and
(ii)the amount of the credit which, apart from this section, would have been so allowed; and
(b)the amount of credit which, on the assumption that no amount were deducted by virtue of section 63A(1) or (3), would be allowable under this Part against income tax in respect of income arising in the subsequent year from the same source as the original income.
(5B)The person chargeable in respect of the income (if any) arising in the subsequent year from the same source as the original income shall—
(a)if the amount given by paragraph (a) of subsection (5A) above exceeds that given by paragraph (b) of that subsection, be treated as having received in that year a payment chargeable under Case VI of Schedule D of an amount such that income tax on it at the basic rate is equal to the excess; and
(b)if the amount given by paragraph (b) of subsection (5A) above exceeds that given by paragraph (a) of that subsection, be allowed for that year under this Part an amount of credit equal to the excess.
(5C)For the purposes of subsections (5) to (5B) above, it shall be assumed that, where an amount is deducted by virtue of section 63A(1), each of the overlap profits included in the aggregate of such profits contributes to that amount in the proportion which that overlap profit bears to that aggregate.”
(3)In subsection (8) of that section—
(a)immediately before the definition of “overseas tax” there shall be inserted the following definition—
““overlap profit” means an amount of profits or gains which, by virtue of sections 60 to 62, is included in the computations for two successive years of assessment;”; and
(b)the definitions of “non-basis period” and “years of commencement” and the words “references to the enactments relating to cessation are references to sections 63, 67 and 113” shall cease to have effect.
218Commencement, transitional provisions and savings
(1)Unless the contrary intention appears, this Chapter—
(a)except in its application to a trade set up and commenced on or after 6th April 1994 or income from a source arising to a person on or after that date, has effect as respects the year 1996-97 and subsequent years of assessment, and
(b)in its application to a trade so set up and commenced or income from a source so arising, has effect as respects the year 1994-95 and subsequent years of assessment.
(2)Any reference in subsection (1) above to a trade includes a reference to a profession, vocation, employment or office.
(3)Where the first underwriting year of the underwriting business of a member of Lloyd’s is the year 1994, subsection (1) above shall have effect in relation to that business as if it had been set up and commenced on 6th April 1994.
(4)Where, as respects income from any source, income tax is to be charged under Case IV or V of Schedule D by reference to the amounts of income received in the United Kingdom, the source shall be treated for the purposes of subsection (1) above as arising on the date on which the first amount of income is so received.
(5)This Chapter shall have effect subject to the transitional provisions and savings contained in Schedule 20 to this Act.