Finance Act 2013

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Provisions relating to loss relief.

18.— (1) The Principal Act is amended—

(a) in Chapter 6 of Part 4 by inserting the following after section 87:

“Release of debts in certain trades.

87B.— (1) In this section—

‘specified debt’ means any debt incurred by an individual in respect of borrowed money employed in the purchase or development of land held as trading stock (within the meaning of section 89) of a specified trade;

‘specified trade’ means a trade, or a business which is deemed to be a trade by virtue of section 640(2)(a), consisting of or including dealing in or developing land to which Chapter 1 of Part 22 applies;

‘tax year’ means a year of assessment.

(2) If at any time the whole or part of a specified debt of an individual who is engaged in a specified trade is released, the amount released shall be treated as a receipt of the specified trade arising in the tax year in which the release is effected.

(3) If, in any case referred to in subsection (2), the specified trade has been permanently discontinued or is treated for tax purposes as if it had been so discontinued, in a tax year before the release was effected, section 91 shall apply as if the amount released were a sum received after the discontinuance.

(4) For the purposes of this section, the release of the whole or part of a specified debt is treated as having been effected on the earliest of the following dates—

(a) the date when the lender has confirmed that release to the borrower,

(b) the date on which the lender and the borrower have first come to an agreement (whether formal or informal) that the debt or part of the debt is no longer required to be repaid,

(c) in a case in which the agreement under which the money was borrowed provides for any release or non-collection of the debt or part of the debt, the date when the conditions necessary for that release or non-collection are first satisfied, or

(d) in a case in which the release is a result of—

(i) a discharge from bankruptcy, or

(ii) a discharge from debt under the provisions of the Personal Insolvency Act 2012 ,

the date of that discharge.”,

(b) in section 91(4) by inserting “or 87B” after “by virtue of section 87”,

(c) in section 381(1) by inserting “and section 381A” after “Subject to this section”, and

(d) by inserting the following after section 381:

“Restriction of loss relief in certain cases.

381A.— (1) In this section—

‘aggregate income for the tax year’ has the same meaning as in section 531AL;

‘specified loss’, in relation to a tax year and a specified trade, means any loss sustained in the course of the specified trade, which is referable to a deduction allowed in computing the profits or gains of the trade, in respect of either or both—

(a) interest on borrowed money employed in the purchase or development of land which is held as trading stock (within the meaning of section 89) of the trade, and

(b) any reduction in the value of land held as trading stock (within the meaning of section 89) of the trade;

‘specified trade’ means a trade, or a business which is deemed to be a trade by virtue of section 640(2)(a), consisting of or including dealing in or developing land to which Chapter 1 of Part 22 applies;

‘specified trader’, in relation to a specified trade and a tax year, means an individual in respect of whom that part of the total of the individual’s aggregate income for the tax year and the 2 immediately preceding tax years deriving from the specified trade is less than 50 per cent of the total for those 3 tax years of the individual’s aggregate income for the tax year;

‘tax year’ means a year of assessment.

(2) Subject to subsection (3), a claim to repayment of income tax under section 381 may not be made as respects a specified loss sustained by a specified trader in a tax year where the specified loss—

(a) is in respect of interest, unless the interest has been paid, or

(b) is in respect of a reduction in the value of land, unless the loss has been realised by way of a disposal of the land,

prior to the claim being made.

(3) Section 381 shall not apply as respects any specified loss where the disposal of the land to which subsection (2)(b) refers is to a connected person (within the meaning of section 10).

(4) For the purposes of determining the amount of any interest which has been paid, and which is referable to a specified loss sustained in any particular tax year, interest is treated as having been paid in respect of an earlier tax year in preference to a later tax year.

(5) For the purposes of determining the amount of a specified loss sustained in any particular tax year which is referable to a deduction allowed in respect of either interest or a reduction in the value of land—

(a) the deduction allowed in respect of interest is treated as being deducted after all other deductions, and

(b) the deduction allowed in respect of a reduction in the value of land is treated as being deducted immediately prior to the deduction allowed in respect of interest.”.

(2) Subsection (1) comes into operation—

(a) as respects paragraphs (a) and (b), in respect of any specified debt (within the meaning of section 87B (inserted by paragraph (a)) of the Principal Act) released on or after 13 February 2013, and

(b) as respects paragraphs (c) and (d), in respect of interest becoming payable or a reduction in the value of land held as trading stock (within the meaning of section 89 of the Principal Act) occurring on or after 13 February 2013.