Legalize / United Kingdom / Public General Act

Income Tax Act 2007

Type Public General Act

Publication 2007-03-20

Last updated 2026-01-20

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

(b) a company of which both have control.

(6) A person's civil partner is treated as the same person as—

(a) a company of which either of the civil partners has control, or

(b) a company of which both have control.

(7) “Control” is to be read in accordance with sections 450 and 451 of CTA 2010.

Determining losses in previous tax years

70

(1) This section applies for the purposes of sections 67(2) and 68(5) in determining whether a loss, calculated without regard to capital allowances, is made in the trade in any tax year before the current tax year.

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) The loss is determined by reference to—

(a) the profits or losses of periods of account of the trade (calculated for income tax purposes, but without regard to capital allowances), or

(b) if (as a result of section 69) a person claiming the relief is treated as the same person as a company within the charge to corporation tax, the profits or losses of the company's accounting periods (calculated for corporation tax purposes, but without regard to capital allowances),

or by reference to both.

(4) If—

(a) a period of account does not coincide with a tax year, or

(b) an accounting period does not coincide with a tax year,

any of the steps in section 7A(2) of ITTOIA 2005 may be taken to arrive at the profits or losses made in a tax year.

For this purpose references in section 203(2) of that Act ... to periods of account are read as including accounting periods.

(5) The steps must be taken in accordance with section 7A(3) or (4) of ITTOIA 2005.

(6) A loss in a trade is calculated without regard to capital allowances by ignoring—

(a) the allowances treated as expenses of the trade under CAA 2001, and

(b) the charges treated as receipts of the trade under that Act.

Use of trading loss as CGT loss

Treating trade losses as CGT losses

71

A person who cannot deduct all of a loss under a claim for trade loss relief against general income may be able to treat the unused part as an allowable loss for capital gains tax purposes: see sections 261B and 261C of TCGA 1992.

Early trade losses relief

Relief for individuals for losses in first 4 years of trade

72

(1) An individual may make a claim for early trade losses relief if the individual makes a loss in a trade—

(a) in the tax year in which the trade is first carried on by the individual, or

(b) in any of the next 3 tax years.

(2) The claim is for the loss to be deducted in calculating the individual's net income for the 3 tax years before the one in which the loss is made (see Step 2 of the calculation in section 23).

(3) The claim must be made on or before the first anniversary of the normal self-assessment filing date for the tax year in which the loss is made.

(4) This section applies to professions and vocations as it applies to trades.

(5) This section needs to be read with—

(a) section 73 (how relief works),

(b) section 74 (restrictions on the relief unless trade is commercial etc),

(ba) sections 74ZA to 74D (general restrictions on relief),

(bb) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c) sections 75 to 79 (restrictions on the relief and trade loss relief against general income in relation to capital allowances), and

(d) section 80 (restrictions on those reliefs in relation to ring fence income),

(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

How relief works

73

This section explains how the deductions are made for the 3 tax years mentioned in section 72(2). The amount of the loss to be deducted at any step is limited in accordance with sections 24A and 25(4) and (5) .

Restrictions on relief unless trade is commercial etc

74

(1) Early trade losses relief for a loss made by an individual in a trade in a tax year is not available unless the trade is commercial.

(2) The trade is commercial if it is carried on throughout ... the tax year—

(a) on a commercial basis, and

(b) in such a way that profits of the trade could reasonably be expected to be made in the tax year or within a reasonable time afterwards.

(3) If the trade forms part of a larger undertaking, the reference to profits of the trade is to be read as a reference to profits of the undertaking as a whole.

(4) Early trade losses relief for a loss made by an individual is not available if—

(a) the individual first carries on the trade at a time when the individual has a spouse or civil partner and is living with the spouse or civil partner,

(b) the spouse or civil partner previously carried on the trade, and

(5) The relevant 4 year period comprises—

(a) the tax year in which the spouse or civil partner first carried on the trade, and

(b) the next 3 tax years.

(6) This section applies to professions and vocations as it applies to trades.

Restrictions on sideways relief for certain capital allowances

Trade leasing allowances given to individuals

75

(1) Sideways relief is not available to an individual for so much of a loss as derives from a trade leasing allowance unless the individual meets the time commitment test.

(2) A trade leasing allowance is an allowance made under Part 2 of CAA 2001 in respect of—

(a) expenditure incurred on the provision of plant or machinery for leasing in the course of a trade, or

(b) expenditure incurred on the provision for the purposes of a trade of an asset which is not to be leased but which is fee-producing.

(3) An asset is fee-producing if payments in the nature of—

(a) royalties, or

(b) licence fees,

are to arise from rights granted by the individual in connection with the asset.

(4) To meet the time commitment test conditions A and B must be met.

(5) Condition A is that the individual must carry on the trade for a continuous period of at least 6 months beginning or ending in ... the tax year in which the loss was made ....

(6) Condition B is that substantially the whole of the individual's time must be given to carrying on the trade—

(a) for a continuous period of at least 6 months beginning or ending in the tax year (if the individual starts or permanently ceases to carry on the trade in the tax year (or does both)), or

(b) throughout tax year period (in any other case).

First-year allowances: introduction

76

Sideways relief is not available to an individual for so much of a loss as derives from an annual investment allowance or a first-year allowance under Part 2 of CAA 2001 if either section 77 or 78 applies.

First-year allowances: partnerships with companies

77

(1) This section applies if—

(a) the first-year allowance is in respect of expenditure incurred at any time on the provision of plant or machinery for leasing in the course of a qualifying activity, and

(b) either the qualifying activity was at that time carried on by the individual in partnership with a company or arrangements have been made with a view to the activity being so carried on.

(2) It does not matter—

(a) if the firm includes other partners, or

(b) when the arrangements were made.

(3) For the purposes of this section—

(a) letting a ship on charter is treated as leasing the ship, and

(b) references to making arrangements include effecting schemes.

First-year allowances: arrangements to reduce tax liabilities

78

(1) This section applies if—

(a) the annual investment allowance or first-year allowance is made in connection with a relevant qualifying activity or a relevant asset (see subsections (2) and (3)), and

(b) arrangements within subsection (4) have been made.

(2) A qualifying activity is a relevant one if—

(a) at the time when the expenditure was incurred, the activity was carried on by the individual as a partner in a firm, or

(b) at a later time, it has been carried on by the individual as a partner in a firm or transferred to a person connected with the individual.

(3) An asset is a relevant one if, after the time when the expenditure was incurred, the asset was transferred by the individual—

(a) to a person connected with the individual, or

(b) to a person at a price lower than its market value.

(4) Arrangements are within this subsection if as a result of them—

(a) the sole benefit, or

(b) the main benefit,

that might be expected to arise to the individual from the transaction under which the expenditure was incurred is the obtaining of a reduction in tax liability by means of sideways relief.

(5) It does not matter when the arrangements were made.

(6) References to making arrangements include effecting schemes.

Capital allowances restrictions: supplementary

79

(1) If relief is given in a case to which section 75 or 76 applies, the relief is withdrawn by the making of an assessment to income tax under this section.

(2) Expressions which are used—

(a) in any of sections 75 to 78, and

(b) in Part 2 of CAA 2001,

have the same meaning in those sections as in that Part.

Restriction on sideways relief for specific trades

Ring fence income

80

(1) This section applies if—

(a) a person has income arising from oil extraction activities or oil rights (“ring fence income”), and

(b) the person makes a loss in any trade.

(2) Sideways relief for the loss is not to be given against the person's ring fence income except so far as the loss arises from oil extraction activities or oil rights.

(3) “Oil extraction activities” and “oil rights” have the meaning given by sections 225A and 225B of ITTOIA 2005.

Dealings in commodity futures

81

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exploitation of films

82

In the case of a trade carried on by an individual which consists of or includes the exploitation of films—

(a) see section 115 for a restriction on sideways relief if the trade was carried on by the individual as a partner in a firm, and

(b) see section 796 for a charge to income tax if the individual made a loss in the trade (whether carried on alone or as a partner in a firm) for which sideways relief is claimed.

Carry-forward trade loss relief

Carry forward against subsequent trade profits

83

(1) A person may make a claim for carry-forward trade loss relief if—

(a) the person has made a loss in a trade in a tax year, and

(b) relief for the loss has not been fully given under this Chapter or any other provision of the Income Tax Acts or under section 261B of TCGA 1992 (use of trading loss as a CGT loss).

(2) The claim is for the part of the loss for which relief has not been given under any such provision (“the unrelieved loss”) to be deducted in calculating the person's net income for subsequent tax years (see Step 2 of the calculation in section 23).

(3) But a deduction for that purpose is to be made only from profits of the trade.

(4) In calculating a person's net income for a tax year, deductions under this section from the profits of a trade are to be made before deductions of any other reliefs from those profits.

(5) This section applies to professions and vocations as it applies to trades (and section 84 is to be read accordingly).

(6) This section needs to be read with—

(a) section 84 (how relief works),

(b) section 85 (use of trade-related interest and dividends if trade profits insufficient),

(d) section 87 (ring fence trades),

(e) section 88 (carry forward of certain interest as loss), and

(f) section 17(3) of ITTOIA 2005 (effect of becoming or ceasing to be UK resident).

How relief works

84

This section explains how the deductions are to be made. The amount of the unrelieved loss to be deducted at any step is limited in accordance with section 25(4) and (5).

85

(1) This section applies if carry-forward trade loss relief cannot be fully given in relation to the profits of a trade of a tax year because (apart from this section) there are no profits, or insufficient profits, of the trade of the tax year.

(2) For the purposes of the relief any interest or dividends for the tax year that relate to the trade are treated as profits of the trade of the tax year.

(3) Interest or dividends for the tax year relate to the trade if they—

(a) arise in the tax year, and

(b) would be brought into account in calculating the profits of the trade but for the fact that they have been subjected to tax under other provisions of the Income Tax Acts.

Trade transferred to a company

86

(1) This section applies if—

(a) a trade is carried on by an individual otherwise than as a partner in a firm or by individuals in partnership,

(b) the trade is transferred to a company,

(d) in the case of any individual to whom, or to whose nominee or nominees, shares are so allotted, the individual's total income for a relevant tax year includes income derived by the individual from the company.

(2) For the purposes of carry-forward trade loss relief, the income so derived is treated as—

(a) profits of the trade of the relevant tax year carried on by the individual, or

(b) if the trade was carried on by the individual in partnership, profits of the individual's notional trade of the relevant tax year.

(3) The tax year in which the transfer is made is a relevant one if—

(a) the individual is the beneficial owner of the shares allotted as mentioned above, and

(b) the company carries on the trade,

throughout the period beginning with the date of the transfer and ending with the next 5 April.

(4) Otherwise a tax year is a relevant one if—

(a) the individual is the beneficial owner of the shares allotted as mentioned above, and

(b) the company carries on the trade,

throughout the tax year.

(5) The income derived from the company may be by way of dividends on the shares or otherwise.

(6) This section applies to businesses which are not trades as it applies to trades.

Ring fence trades

87

(1) This section applies if—

(a) a person makes a loss in a tax year carrying on oil-related activities (within the meaning of section 16 of ITTOIA 2005),

(b) those activities are treated under that section as a separate trade for the tax year or a subsequent tax year,

(d) the other activities and the oil-related activities would, but for that section, together form a single trade.

(2) For the purposes of carry-forward trade loss relief for the loss, the person may treat profits from the other activities in a subsequent tax year as if they were profits of the separate trade (despite section 16 of ITTOIA 2005).

Carry forward of certain interest as loss

88

(1) This section applies if—

(a) an individual pays interest in a tax year which is eligible for relief under section 383 (as a result of section 388 or 398),

(b) the interest is an expense incurred wholly and exclusively for the purposes of a trade carried on wholly or partly in the United Kingdom, and

(c) relief under section 383 cannot be fully given in respect of the interest because there is no income or insufficient income in the tax year.

(2) For the purposes of carry-forward trade loss relief, the amount for which relief has not been given may be carried forward to subsequent tax years as if it were a loss made in the trade.

(3) This section applies to professions and vocations as it applies to trades.

Terminal trade loss relief

Carry back of losses on a permanent cessation of a trade

89

(1) A person may make a claim for terminal trade loss relief if the person—

(a) permanently ceases to carry on a trade in a tax year (“the final tax year”), and

(b) makes a terminal loss in the trade (see section 90).

(2) The claim is for the total amount of terminal losses made in the trade by the person (“the relievable loss”) to be deducted in calculating the person's net income for the final tax year and the 3 previous tax years (see Step 2 of the calculation in section 23).

(3) But a deduction for that purpose is to be made only from profits of the trade.

(4) This section applies to professions and vocations as it applies to trades (and sections 90 and 91 are to be read accordingly).

(5) This section needs to be read with—

(a) section 91 (how relief works),

(b) section 92 (use of trade-related interest and dividends if trade profits insufficient),

(d) section 94 (carry back of certain interest as loss).

Losses that are “terminal losses”

90

(1) Each of the following is a terminal loss made in the trade—

(a) the loss (if any) made in the trade in the period beginning with the start of the final tax year and ending with the cessation, and

(b) the loss (if any) made in the trade in the period consisting of so much of the previous tax year as falls in the 12 months prior to the cessation.

(2) The profit or loss of a period mentioned in subsection (1)(a) or (b) (a “terminal loss period”) is determined by reference to the profits or losses of periods of account of the trade (calculated for income tax purposes).

(3) If no period of account coincides with a terminal loss period, any of the following steps may be taken if they are necessary in order to arrive at the profit or loss of the terminal loss period—

(a) apportioning the profit or loss of a period of account between the part of the period that falls in the terminal loss period and the part that does not, and

(b) adding the profit or loss of a period of account (or part of a period) to profits or losses of other periods of account (or parts).

(4) Section 7A(3) and (4) of ITTOIA 2005 applies for the purposes of subsection (3) as it applies for the purposes of section 7A(2) of that Act.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) In the case of a notional trade carried on by a partner in a firm—

(a) the periods of account of the notional trade are taken to be the periods of account of the actual trade, and

(b) the references in subsections (2) and (3) to the profits or losses of periods of account of the trade are to the partner's share of the profits or losses of the actual trade determined in accordance with sections 849 and 850 of ITTOIA 2005.

How relief works

91

This section explains how the deductions are to be made. The amount of the relievable loss to be deducted at any step is limited in accordance with section 25(4) and (5).

92

(1) This section applies if terminal trade loss relief cannot be fully given in relation to the profits of a trade of a tax year because (apart from this section) there are no profits, or insufficient profits, of the trade of the tax year.

(2) For the purposes of the relief any interest or dividends for the tax year that relate to the trade are treated as profits of the trade of the tax year.

(3) Interest or dividends for the tax year relate to the trade if they—

(a) arise in the tax year, and

(b) would be brought into account in calculating the profits of the trade but for the fact that they have been subjected to tax under other provisions of the Income Tax Acts.

Mineral extraction trade and carry back of balancing allowances

93

(1) This section applies if—

(a) a person permanently ceases to carry on a mineral extraction trade, and

(b) the person makes a claim for terminal trade loss relief and a claim in respect of a balancing allowance under section 355 of CAA 2001.

(2) Terminal trade loss relief must be given before relief under section 355 of CAA 2001.

(3) In giving effect to the terminal trade loss relief, the balancing allowance is to be ignored.

(4) “Mineral extraction trade” has the same meaning as in Part 5 of CAA 2001 (see section 394 of that Act).

Carry back of certain interest as loss

94

(1) This section applies if—

(a) an individual pays interest in a tax year which is eligible for relief under section 383 (as a result of section 388 or 398),

(b) the interest is an expense incurred wholly and exclusively for the purposes of a trade carried on wholly or partly in the United Kingdom, and

(c) relief under section 383 cannot be fully given in respect of the interest because there is no income or insufficient income in the tax year.

(2) For the purposes of terminal trade loss relief, the amount for which relief has not been given may be treated as a loss made in the trade at the date of payment.

(3) This section applies to professions and vocations as it applies to trades.

Wholly foreign trades

Foreign trades etc: reliefs only against foreign income

95

(1) This section applies if a person—

(a) carries on a trade, profession or vocation wholly outside the United Kingdom, and

(b) makes a loss in the trade, profession or vocation.

(2) In that case—

(a) sideways relief for the loss is available only against the person's qualifying foreign income,

(b) trade income relief for the loss is available only against the person's qualifying foreign trade income, and

(3) “Trade income relief” means—

(a) carry-forward trade loss relief, or

(b) terminal trade loss relief.

(4) “Qualifying foreign income” means—

(a) qualifying foreign trade income, or

(b) income falling within section 23, 355, 575, 613, 615, 631 or 635 of ITEPA 2003 (foreign employment or pension income).

(5) “Qualifying foreign trade income” means the profits of any trade, profession or vocation carried on wholly outside the United Kingdom.

(6) But “qualifying foreign income” and “qualifying foreign trade income” do not include any income which is charged to income tax in accordance with section 832 of ITTOIA 2005 (relevant foreign income charged on the remittance basis).

Post-cessation trade relief

96

(1) A person may make a claim for post-cessation trade relief if, after permanently ceasing to carry on a trade—

(a) the person makes a qualifying payment, or

(b) a qualifying event occurs in relation to a debt owed to the person,

and the payment is made, or the event occurs, within 7 years of that cessation.

(2) If the claim is made in respect of a payment, the claim is for the payment to be deducted in calculating the person's net income for the tax year in which the payment is made (see Step 2 of the calculation in section 23).

(3) If the claim is made in respect of an event, the claim is for the appropriate amount of the debt to be deducted in calculating the person's net income for the relevant tax year (see Step 2 of the calculation in section 23).

(4) The claim must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the deduction is to be made.

(5) If—

(a) the person is a company within the charge to income tax under Chapter 2 of Part 2 of ITTOIA 2005 in respect of a trade, and

(b) the company ceases at any time to be within that tax charge in respect of the trade,

the company is treated for the purposes of this section as permanently ceasing to carry on the trade at that time.

(6) This section applies to professions and vocations as it applies to trades (and sections 97 and 98 are to be read accordingly).

(7) This section needs to be read with—

(a) section 97 (meaning of “qualifying payment”),

(b) section 98 (meaning of “qualifying event” etc),

(ba) section 98A (denial of relief for tax-generated payments or events),

(d) section 100 (prohibition against double counting).

Meaning of “qualifying payment”

97

(1) For the purposes of section 96 a person makes a “qualifying payment” after permanently ceasing to carry on a trade if the person makes a payment wholly and exclusively for any of purposes A to D.

(2) A payment is made for purpose A if it is made—

(a) in remedying defective work done, goods supplied or services provided in the course of the trade, or

(b) by way of damages (whether awarded or agreed) in respect of defective work done, goods supplied or services provided in the course of the trade.

(3) A payment is made for purpose B if it is made in meeting the expenses of legal or other professional services in connection with a claim (a “claim about defects”) that—

(a) work done in the course of the trade was defective,

(b) goods supplied in the course of the trade were defective, or

(4) A payment is made for purpose C if it is made in insuring—

(a) against liabilities arising out of any claim about defects, or

(b) against the liability to meet the expenses of legal or other professional services in connection with any claim about defects.

(5) A payment is made for purpose D if it is made for the purpose of collecting a debt which was brought into account in calculating the profits of the trade.

Meaning of “qualifying event” etc

98

(1) This section explains for the purposes of section 96 what is meant by—

(a) a “qualifying event” occurring in relation to a debt owed to a person who has permanently ceased to carry on a trade, and

(b) “the appropriate amount of the debt” to be deducted in calculating a person's net income for “the relevant tax year”.

(2) A qualifying event occurs in relation to a debt owed to the person if—

(a) an unpaid debt was brought into account in calculating the profits of the trade,

(b) the person is entitled to the benefit of the debt, and

(c) the debt is released (in whole or in part) as part of a statutory insolvency arrangement (within the meaning of Part 2 of ITTOIA 2005).

The event occurs when the debt is released.

(3) The appropriate amount of the debt to be deducted is—

(a) the amount released, or

(b) if the person was entitled to only part of the benefit of the debt, the corresponding part of the amount released.

(4) The relevant tax year is the tax year in which the debt is released.

(5) A qualifying event also occurs in relation to a debt owed to the person if—

(a) an unpaid debt was brought into account in calculating the profits of the trade,

(b) the person is entitled to the benefit of the debt, and

The event occurs when the debt proves to be bad.

(6) The appropriate amount of the debt to be deducted is—

(a) the amount of the debt, or

(b) if the person was entitled to only part of the benefit of the debt, the corresponding part of the amount of the debt.

(7) The relevant tax year is the tax year specified in the claim.

(8) The person making the claim may specify—

(a) the tax year in which the debt proves to be bad, or

(b) a subsequent tax year throughout which the debt remains bad (so long as the tax year begins within 7 years of the cessation),

but, if the person has previously made a claim specifying a tax year in respect of the debt, the person may not specify another tax year in respect of it.

Reduction of relief for unpaid trade expenses

99

(1) This section applies for the purposes of post-cessation trade relief in respect of a person's trade if a deduction was made in calculating the profits of the trade for an expense not actually paid (an “unpaid expense”).

(2) The amount of the person's relief for a tax year is reduced (but not below nil) by—

(a) the total amount of unpaid expenses at the end of the tax year, or

(b) if the person carried on the trade as a partner in a firm, the person's share of the total amount of unpaid expenses at the end of the tax year.

(3) But any unpaid expense which is taken into account in reducing the amount of the person's relief for a tax year is left out of account in making reductions for subsequent tax years.

(4) If the person actually pays an amount in respect of an unpaid expense taken into account in reducing the amount of the person's relief, the person is treated as making a qualifying payment for the purposes of section 96.

(5) The amount of the qualifying payment is—

(a) the amount actually paid, or

(b) if less, the amount of the reduction.

(6) This section applies to professions and vocations as it applies to trades.

Prohibition against double counting

100

(1) Post-cessation trade relief is not available for an amount for which relief is given, or is available, under any other provision of the Income Tax Acts.

(2) For this purpose—

(a) relief available under section 254 of ITTOIA 2005 (allowable deductions against post-cessation receipts) is treated as given for other amounts before any amount for which post-cessation trade relief is available, and

(b) relief under that section is treated as available if it would have been available but for the fact that the post-cessation receipts (against which the deductions would have been allowed) are exempt under section 524 of this Act.

Treating excess post-cessation trade relief as CGT loss

101

A person who cannot deduct all of an amount under a claim for post-cessation trade relief may be able to treat the unused part as an allowable loss for capital gains tax purposes: see sections 261D and 261E of TCGA 1992.

Chapter 3 — Restrictions on trade loss relief for certain partners

Introduction

Overview of Chapter

102

(1) This Chapter restricts the amount of relief that may be given for any loss made by an individual in a trade carried on by the individual as—

(a) a limited partner in any tax year (see sections 103A, 103C to 105, 113A and 114),

(b) a member of a limited liability partnership (an “LLP”) in any tax year (see sections 103C, 103D, 107 to 109, 113A and 114), or

(2) This Chapter also restricts the amount of relief that may be given for any loss made by an individual in a trade carried on by the individual as a partner in a firm if the trade consists of or includes the exploitation of films (see section 115 ).

(2A) This Chapter also provides for no relief to be given for a loss made by an individual in a trade carried on by the individual as a partner in a firm in certain cases where some or all of the loss is allocated to the individual rather than a person who is not an individual (see section 116A).

(3) This Chapter needs to be read with sections 791 to 795 (income tax charge recovering excess relief for losses made by individuals carrying on a trade in partnership).

(4) See also—

(a) sections 796 to 803 (income tax charge in relation to individuals claiming relief for film-related trading losses), and

(b) sections 804 to 809 (income tax charge in relation to individuals carrying on a trade in partnership claiming relief for licence-related trading losses).

Meaning of “sideways relief”, “capital gains relief” and “firm”

103

(1) For the purposes of this Chapter sideways relief is—

(a) trade loss relief against general income (see sections 64 to 70), or

(b) early trade losses relief (see sections 72 to 74).

(2) For the purposes of this Chapter—

(a) capital gains relief is, in relation to a loss, the treatment of the loss as an allowable loss by virtue of section 261B of TCGA 1992 (use of trading loss as a CGT loss), and

(b) capital gains relief is given for a loss when it is so treated.

(3) References in this Chapter to a firm are to be read in the same way as references to a firm in Part 9 of ITTOIA 2005 (which contains special provision about partnerships).

Limited partners

Restriction on reliefs for limited partners

104

(1) This section applies if—

(a) at a time in a tax year (“the relevant tax year”) an individual carries on a trade (“the relevant trade”) as a limited partner in a firm, and

(b) the individual makes a loss in the relevant trade in the relevant tax year.

(2) There is a restriction on the amount of relief within subsection (3) which may be given to the individual for the loss.

(3) The relief within this subsection is—

(a) sideways relief against the individual's income apart from profits of the relevant trade, and

(b) capital gains relief.

(4) The restriction is that—

(a) the sum of the amount of the relief given and the total amount of all other relevant relief given, less

(b) the total amount of recovered relief,

must not exceed the individual's contribution to the firm as at the end of ... the relevant tax year (see section 105).

(5) “Relevant relief” means sideways relief or capital gains relief given to the individual for—

(a) a loss made in the relevant trade in a tax year at a time during which the individual carries on that trade as a limited partner, or

(b) a loss made in the relevant trade in an early tax year during which the individual carries on that trade as a non-active partner ....

(6) “The total amount of recovered relief” means the total amount of income treated as received by the individual under section 792 (recovery of excess relief) as a result of the application of that section in relation to claims for relief for losses made by the individual in the relevant trade.

(7) If the firm is carrying on, or has carried on, other trades apart from the relevant trade, for the purpose of determining the total amount of all other relevant relief and the total amount of recovered relief—

(a) apply subsection (5) in relation to each other trade as well as the relevant trade and then add the results together, and

(b) apply subsection (6) as if the reference to the relevant trade were a reference to the relevant trade or any of the other trades.

Meaning of “contribution to the firm”

105

(1) For the purposes of section 104 the individual's contribution to the firm is the sum of amounts A and B.

(2) Amount A is the amount which the individual has contributed to the firm as capital less so much of that amount (if any) as is within subsection (4).

(3) In particular, the individual's share of any profits of the firm is to be included in the amount which the individual has contributed to the firm as capital so far as that share has been added to the firm's capital.

(4) An amount of capital is within this subsection if it is an amount which—

(a) the individual has previously drawn out or received back,

(b) the individual is or may be entitled to draw out or receive back at any time when the individual is carrying on a trade as a limited partner in the firm, or

(5) In subsection (4) any reference to drawing out or receiving back an amount is to doing so directly or indirectly but does not include drawing out or receiving back an amount which, because of its being drawn out or received back, is chargeable to income tax as profits of a trade.

(6) Amount B is the amount of the individual's total share of profits within subsection (7) except so far as—

(a) that share has been added to the firm's capital, or

(b) the individual has received that share in money or money's worth.

(7) Profits are within this subsection if they are from the relevant trade.

(8) In determining the amount of the individual's total share of profits within subsection (7) ignore the individual's share of any losses from the relevant trade which would (apart from this subsection) reduce that amount.

(9) In subsections (3), (7) and (8) any reference to profits or losses are to profits or losses calculated in accordance with generally accepted accounting practice (before any adjustment required or authorised by law in calculating profits or losses for income tax purposes).

(10) If the firm is carrying on, or has carried on, other trades apart from the relevant trade, subsections (7) and (8) have effect as if references to the relevant trade were references to the relevant trade or any of the other trades.

(11) This section needs to be read with section 113A and any regulations made under section 114 (exclusion of amounts in calculating the individual's contribution to the firm for the purposes of section 104).

Meaning of “limited partner”

106

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Members of LLPs

Restriction on reliefs for members of LLPs

107

(1) This section applies if—

(a) an individual carries on a trade (“the relevant trade”) as a member of an LLP at a time in a tax year, and

(b) the individual makes a loss in the relevant trade in the tax year (“the relevant tax year”).

(2) But if the relevant tax year is an early tax year during which the individual carries on the relevant trade as a non-active partner ...—

(a) this section does not apply, and

(b) section 110 applies instead.

(3) There is a restriction on the amount of relief within subsection (4) which may be given to the individual for the loss.

(4) The relief within this subsection is—

(a) sideways relief against the individual's income apart from profits of the relevant trade, and

(b) capital gains relief.

(5) The restriction is that—

(a) the sum of the amount of the relief given and the total amount of all other relevant relief given, less

(b) the total amount of recovered relief,

must not exceed the individual's contribution to the LLP as at the end of ... the relevant tax year (see section 108).

(6) “Relevant relief” means sideways relief or capital gains relief given to the individual for—

(a) a loss made in the relevant trade in a tax year at a time during which the individual carries on that trade as a member of an LLP, or

(b) a loss made in the relevant trade in an early tax year during which the individual carries on that trade as a non-active partner.

(7) “The total amount of recovered relief” means the total amount of income treated as received by the individual under section 792 (recovery of excess relief) as a result of the application of that section in relation to claims for relief for losses made by the individual in the relevant trade.

(8) If the LLP is carrying on, or has carried on, other trades apart from the relevant trade, for the purpose of determining the total amount of all other relevant relief and the total amount of recovered relief—

(a) apply subsection (6) in relation to each other trade as well as the relevant trade and then add the results together, and

(b) apply subsection (7) as if the reference to the relevant trade were a reference to the relevant trade or any of the other trades.

Meaning of “contribution to the LLP”

108

(1) For the purposes of section 107 the individual's contribution to the LLP at any time (“the relevant time”) is the sum of amounts A and B.

(2) Amount A is the amount which the individual has contributed to the LLP as capital less so much of that amount (if any) as is within subsection (5).

(3) In particular, the individual's share of any profits of the LLP is to be included in the amount which the individual has contributed to the LLP as capital so far as that share has been added to the LLP's capital.

(4) In subsection (3) the reference to profits is to profits calculated in accordance with generally accepted accounting practice (before any adjustment required or authorised by law in calculating profits for income tax purposes).

(5) An amount of capital is within this subsection if it is an amount which—

(a) the individual has previously drawn out or received back,

(b) the individual draws out or receives back during the period of 5 years beginning with the relevant time,

(c) the individual is or may be entitled to draw out or receive back at any time when the individual is a member of the LLP, or

(d) the individual is or may be entitled to require another person to reimburse to the individual.

(6) In subsection (5) any reference to drawing out or receiving back an amount is to doing so directly or indirectly but does not include drawing out or receiving back an amount which, because of its being drawn out or received back, is chargeable to income tax as profits of a trade.

(7) Amount B is the amount of the individual's liability on a winding up of the LLP so far as that amount is not included in amount A.

(8) For the purposes of subsection (7) the amount of the individual's liability on a winding up of the LLP is the amount which—

(a) the individual is liable to contribute to the assets of the LLP in the event of its being wound up, and

(b) the individual remains liable to contribute for the period of at least 5 years beginning with the relevant time (or until the LLP is wound up, if that happens before the end of that period).

(9) This section needs to be read with section 113A and any regulations made under section 114 (exclusion of amounts in calculating the individual's contribution to the LLP for the purposes of section 107).

Unrelieved losses brought forward

109

(1) This section applies for the purpose of determining an individual's entitlement to sideways relief and capital gains relief if—

(a) the individual carries on a trade as a member of an LLP at a time during a tax year (“the current tax year”), and

(b) as a result of section 107, sideways relief or capital gains relief has not been given to the individual for amounts of loss made in the trade in previous tax years as a member of the LLP.

(2) So far as they are not excluded by subsection (3), the amounts of loss mentioned in subsection (1)(b) are treated as having been made in the current tax year.

(3) An amount of loss is excluded so far as—

(a) as a result of this section, sideways relief or capital gains relief has been given to the individual for the amount for years prior to the current tax year or would have been so given had a claim been made, or

(b) other than as a result of this section, relief under the Income Tax Acts has been given to the individual for the amount for years prior to the current tax year or for the current tax year.

Non-active members of LLPs or other partnerships (apart from limited partnerships)

Restriction on reliefs for non-active partners in early tax years

110

(1) This section applies if—

(a) an individual carries on a trade (“the relevant trade”) as a non-active partner in a firm during an early tax year ..., and

(b) the individual makes a loss in the relevant trade in that tax year (“the relevant tax year”).

(2) There is a restriction on the amount of relief within subsection (3) which may be given to the individual for the loss.

(3) The relief within this subsection is—

(a) sideways relief against the individual's income apart from profits of the relevant trade, and

(b) capital gains relief.

(4) The restriction is that—

(a) the sum of the amount of the relief given and the total amount of all other relevant relief given, less

(b) the total amount of recovered relief,

must not exceed the individual's contribution to the firm as at the end of ... the relevant tax year (see section 111).

(5) “Relevant relief” means sideways relief or capital gains relief given to the individual for—

(a) a loss made in the relevant trade in a tax year at a time during which the individual carries on that trade as a limited partner or as a member of an LLP, or

(b) a loss made in the relevant trade in an early tax year during which the individual carries on that trade as a non-active partner.

(6) “The total amount of recovered relief” means the total amount of income treated as received by the individual under section 792 (recovery of excess relief) as a result of the application of that section in relation to claims for relief for losses made by the individual in the relevant trade.

(7) If the firm is carrying on, or has carried on, other trades apart from the relevant trade, for the purpose of determining the total amount of all other relevant relief and the total amount of recovered relief—

(a) apply subsection (5) in relation to each other trade as well as the relevant trade and then add the results together, and

(b) apply subsection (6) as if the reference to the relevant trade were a reference to the relevant trade or any of the other trades.

(8) In this section “trade” does not include a trade which consists of the underwriting business of a member of Lloyd's (within the meaning of section 184 of FA 1993).

Meaning of “contribution to the firm”

111

(1) For the purposes of section 110 the individual's contribution to the firm at any time (“the relevant time”) is the sum of amount A and amount B and, if there is a winding up of the firm, amount C.

(2) Amount A is the amount which the individual has contributed to the firm as capital less so much of that amount (if any) as is within subsection (4).

(3) In particular, the individual's share of any profits of the firm is to be included in the amount which the individual has contributed to the firm as capital so far as that share has been added to the firm's capital.

(4) An amount of capital is within this subsection if it is an amount which—

(a) the individual has previously drawn out or received back,

(b) the individual draws out or receives back during the period of 5 years beginning with the relevant time,

(c) the individual is or may be entitled to draw out or receive back at any time when the individual is carrying on a trade as a partner in the firm, or

(d) the individual is or may be entitled to require another person to reimburse to the individual.

(5) In subsection (4) any reference to drawing out or receiving back an amount is to doing so directly or indirectly but does not include drawing out or receiving back an amount which, because of its being drawn out or received back, is chargeable to income tax as profits of a trade.

(6) Amount B is the amount of the individual's total share of profits within subsection (7) except so far as—

(a) that share has been added to the firm's capital, or

(b) the individual has received that share in money or money's worth.

(7) Profits are within this subsection if they are from the relevant trade.

(8) In determining the amount of the individual's total share of profits within subsection (7) ignore the individual's share of any losses from the relevant trade which would (apart from this subsection) reduce that amount.

(9) In subsections (3), (7) and (8) any reference to profits or losses are to profits or losses calculated in accordance with generally accepted accounting practice (before any adjustment required or authorised by law in calculating profits or losses for income tax purposes).

(10) If the firm is carrying on, or has carried on, other trades apart from the relevant trade, subsections (7) and (8) have effect as if references to the relevant trade were references to the relevant trade or any of the other trades.

Subsection (8) of section 110 applies for the purposes of this subsection as it applies for the purposes of that section.

(11) Amount C is the amount which the individual has contributed to the assets of the firm on its winding up so far as it is not included in amount A or B.

(12) This section needs to be read with section 113A and any regulations made under section 114 (exclusion of amounts in calculating the individual's contribution to the firm for the purposes of section 110).

Meaning of “non-active partner” and “early tax year” etc

112

(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) In this Chapter “early tax year” means, in relation to an individual carrying on a trade—

(a) the tax year in which the individual first started to carry on the trade, or

(b) one of the next 3 tax years.

Unrelieved losses brought forward

113

(1) This section applies for the purpose of determining an individual's entitlement to sideways relief and capital gains relief in relation to a trade if—

(a) at a time during a tax year (“the current tax year”) the individual carries on the trade as a partner in a firm or makes a contribution to the assets of a firm within subsection (2) on the firm's winding up, and

(b) as a result of section 110, sideways relief or capital gains relief has not been given to the individual for amounts of loss made in the trade in previous tax years.

(2) A firm is within this subsection if the individual has carried on the trade as a partner in the firm.

(3) So far as they are not excluded by subsection (4), the amounts of loss mentioned in subsection (1)(b) are treated as having been made in the current tax year.

(4) An amount of loss is excluded so far as—

(a) as a result of this section, sideways relief or capital gains relief has been given to the individual for the amount for years prior to the current tax year or would have been so given had a claim been made, or

(b) other than as a result of this section, relief under the Income Tax Acts has been given to the individual for the amount for years prior to the current tax year or for the current tax year.

(5) For the purpose of applying sections 107 and 110 in relation to the amounts of loss treated by this section as having been made in the current tax year—

(a) the individual is treated as having carried on the trade during the current tax year as a non-active partner in the firm, and

(b) the current tax year is treated as if it were an early tax year in relation to the individual's carrying on of the trade.

(6) Subsection (7) applies if the individual—

(a) made a contribution in the current tax year to the assets of the firm on its winding up, but

(b) did not carry on the trade as a partner in the firm in the current tax year.

(7) If this subsection applies—

(a) the restrictions under sections 66 and 74(1) do not apply in relation to the amounts of loss treated by this section as having been made in the current tax year, ...

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) In subsection (1)(b) the reference to amounts of loss does not include amounts of loss which have been treated by section 109 as having been made in any previous tax year.

...

Exclusion of amounts in calculating contribution to the firm or LLP

114

(1) The Commissioners for Her Majesty's Revenue and Customs may by regulations provide that any amount of a specified description is to be excluded in calculating—

(a) the individual's contribution to the firm for the purposes of section 104 or 110, or

(b) the individual's contribution to the LLP for the purposes of section 107.

(2) “Specified” means specified in the regulations.

(3) The regulations may—

(a) make provision having retrospective effect,

(b) contain incidental, supplemental, consequential and transitional provision and savings, and

(4) The provision which may be made as a result of subsection (3)(b) includes provision amending or repealing any provision of an Act passed before FA 2005.

(5) No regulations may be made under this section unless a draft of them has been laid before and approved by a resolution of the House of Commons.

Restrictions for film trades carried on in partnership

Restrictions on reliefs for firms exploiting films

115

(1) This section applies if—

(a) an individual carries on a trade as a partner in a firm at a time during a tax year,

(b) the trade consists of or includes the exploitation of films,

(d) the individual does not devote a significant amount of time to the trade in the relevant period for the affected tax year ...,

(e) the affected tax year is the one in which the individual first started to carry on the trade or is one of the next 3 tax years, and

(f) a relevant agreement existed at a time during the affected tax year which guaranteed the individual an amount of income (see subsections (5) to (9)).

(2) Sideways relief for the loss is not available to the individual, except against any of the individual's income which consists of profits of the trade.

(3) Capital gains relief for the loss is not available to the individual.

(4) The restrictions under this section do not apply to so much of the loss (if any) as derives from qualifying film expenditure.

(5) An agreement is relevant if—

(a) it is an agreement made with a view to the individual's carrying on the trade,

(b) it is an agreement made in the course of the individual's carrying it on, or

(6) An agreement is relevant whether or not the individual is or may be required under the agreement to contribute an amount to the trade.

(7) Agreements are related to one another if they are entered into under the same arrangement (regardless of when either agreement is entered into).

(8) A relevant agreement guarantees the individual an amount of income if it (or any part of it) is designed to secure the receipt by the individual of that amount (or at least that amount) of income.

(9) It does not matter when the amount of income is (or is to be) received.

(10) In this section “film” is to be read in accordance with paragraph 1 of Schedule 1 to the Films Act 1985 (c. 21).

Exclusion from restrictions under section 115: certain film expenditure

116

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 4 — Losses from property businesses

Introduction

Overview of Chapter

117

(1) This Chapter—

(a) provides for losses made in a UK property business or overseas property business in a tax year to be carried forward for deduction from profits in subsequent tax years (see sections 118 and 119),

(b) provides in limited circumstances for relief against general income for losses made in a UK property business or overseas property business (see sections 120 to 124), and

(c) provides for relief for certain post-cessation payments and events in connection with a UK property business (see section 125).

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) This Chapter also contains provision restricting relief under this Chapter (see sections 127A to 127C).

Carry-forward property loss relief

Carry forward against subsequent property business profits

118

(1) Relief is given to a person under this section if the person—

(a) carries on a UK property business or overseas property business (alone or in partnership) in a tax year, and

(b) makes a loss in the business in the tax year.

(2) The relief is given by deducting the loss in calculating the person's net income for subsequent tax years (see Step 2 of the calculation in section 23).

(3) But a deduction for that purpose is to be made only from profits of the business.

(4) In calculating a person's net income for a tax year, deductions under this section from the profits of a business are to be made before deductions of any other reliefs from those profits.

(5) No relief is to be given under this section so far as relief for the loss is given under section 120.

(6) This section needs to be read with section 119 (how relief works).

How relief works

119

This section explains how the deductions are to be made. The amount of the loss to be deducted at any step is limited in accordance with section 25(4) and (5).

Property loss relief against general income

Deduction of property losses from general income

120

(1) A person may make a claim for property loss relief against general income if—

(a) in a tax year (“the loss-making year”) the person makes a loss in a UK property business or overseas property business (whether carried on alone or in partnership), and

(b) the loss has a capital allowances connection or the business has a relevant agricultural connection.

(2) The claim is for the applicable amount of the loss to be deducted in calculating the person's net income—

(a) for the loss-making year, or

(b) for the next tax year.

(See Step 2 of the calculation in section 23.)

(3) The claim must specify the tax year for which the deduction is to be made.

(4) But if the applicable amount of the loss is not deducted in full in giving effect to a claim for the specified tax year, the person may make a separate claim for property loss relief against general income for the other tax year.

(5) For this purpose “the other tax year” means the tax year which was not specified in the claim already made, but which could have been specified.

(6) This section needs to be read with—

(a) section 121 (how relief works),

(b) section 122 (meaning of “the applicable amount of the loss”),

(c) section 123 (meaning of “the loss has a capital allowances connection” and “the business has a relevant agricultural connection”), and

(d) section 124 (supplementary).

(7) See also section 127A (no relief for tax-generated losses attributable to annual investment allowance) and section 127B (no relief for tax-generated agricultural expenses) and section 127BA (restriction of relief: cash basis).

How relief works

121

(1) This subsection explains how the deductions are to be made.

The amount of the applicable amount of the loss to be deducted at any step is limited in accordance with sections 24A and 25(4) and (5).

Step 1

Deduct the applicable amount of the loss in calculating the person's net income for the specified tax year.

Step 2

This step applies if the applicable amount of the loss has not been deducted in full and the person makes a separate claim for the other tax year.

Deduct the part of the applicable amount of the loss not deducted at Step 1 in calculating the person's net income for the other tax year.

Other relief

If the applicable amount of the loss has not been deducted in full at Steps 1 and 2, relief is given under section 118 for the part not so deducted.

(2) There is a priority rule if—

(a) a person makes a claim for property loss relief against general income (“the prior claim”) in respect of a loss made in a tax year,

(b) the prior claim specifies the next tax year as the one for which the deduction is to be made (“the relevant tax year”),

(c) the person makes another claim for property loss relief against general income in respect of a loss made in the relevant tax year, and

(d) that other claim also specifies the relevant tax year as the one for which the deduction is to be made.

(3) The rule is that priority is given to making deductions under the prior claim.

Meaning of “the applicable amount of the loss”

122

(1) This section defines “the applicable amount of the loss” for the purposes of sections 120 and 121.

(2) “The applicable amount of the loss” is—

(a) the amount of the loss, or

(b) if less, the amount arising from the relevant connection (see subsections (3) to (5)).

(3) If—

(a) the loss has a capital allowances connection, but

(b) the business does not have a relevant agricultural connection,

the amount arising from the relevant connection is the amount (“the net capital allowances”) by which the capital allowances exceed the charges under CAA 2001.

(4) If—

(a) the business has a relevant agricultural connection, but

(b) the loss does not have a capital allowances connection,

the amount arising from the relevant connection is the amount of the allowable agricultural expenses.

(5) If—

(a) the loss has a capital allowances connection, and

(b) the business has a relevant agricultural connection,

the amount arising from the relevant connection is the sum of the net capital allowances and the amount of the allowable agricultural expenses.

Meaning of “the loss has a capital allowances connection” and “the business has a relevant agricultural connection”

123

(1) This section applies for the purposes of sections 120 and 122.

(2) The loss has a capital allowances connection if, in calculating the loss—

(a) the amount of the capital allowances treated as expenses of the business, exceeds

(b) the amount of any charges under CAA 2001 treated as receipts of the business.

(2A) But any allowance under Part 2A of CAA 2001 (structures and buildings allowances) is to be ignored for the purposes of subsection (2).

(3) The business has a relevant agricultural connection if—

(a) the business is carried on in relation to land that consists of or includes an agricultural estate, and

(b) allowable agricultural expenses deducted in calculating the loss are attributable to the estate.

(4) “Agricultural estate” means land—

(a) which is managed as one estate, and

(b) which consists of or includes land occupied wholly or mainly for purposes of husbandry.

(5) “Allowable agricultural expenses”, in relation to an agricultural estate, means any expenses attributable to the estate which are deductible—

(a) in respect of maintenance, repairs, insurance or management of the estate, and

(b) otherwise than in respect of interest payable on a loan.

(6) But expenses attributable to the parts of the estate used wholly for purposes other than those of husbandry are to be ignored.

(7) And if parts of the estate are used both—

(a) for purposes of husbandry, and

(b) for other purposes,

the expenses in respect of those parts are to be reduced so far as those parts are used for the other purposes.

Supplementary

124

(1) A claim for property loss relief against general income must be made on or before the first anniversary of the normal self-assessment filing date for the tax year specified in the claim.

(2) If a loss has previously been carried forward under section 118, the claim must be accompanied by the amendments of any return made under—

(a) section 8 of TMA 1970, or

(b) section 8A of TMA 1970,

that are necessary to give effect to section 118(5) (reducing the amount of the loss carried forward (if necessary, to nil)).

Post-cessation property relief

125

(1) A person may make a claim for post-cessation property relief if, after permanently ceasing to carry on a UK property business (whether carried on alone or in partnership)—

(a) the person makes a qualifying payment, or

(b) a qualifying event occurs in relation to a debt owed to the person,

and the payment is made, or the event occurs, within 7 years of that cessation.

(2) If the claim is made in respect of a payment, the claim is for the payment to be deducted in calculating the person's net income for the tax year in which the payment is made (see Step 2 of the calculation in section 23).

(3) If the claim is made in respect of an event, the claim is for the appropriate amount of the debt to be deducted in calculating the person's net income for the relevant tax year (see Step 2 of the calculation in section 23).

(4) The claim must be made on or before the first anniversary of the normal self-assessment filing date for the tax year for which the deduction is to be made.

(5) If—

(a) the person is a company within the charge to income tax under Chapter 3 of Part 3 of ITTOIA 2005 in respect of a UK property business, and

(b) the company ceases at any time to be within that tax charge in respect of the business,

the company is treated for the purposes of this section as permanently ceasing to carry on the business at that time.

(6) The following provisions apply for the purposes of post-cessation property relief as they apply for the purposes of post-cessation trade relief (but as if any reference to a trade were to a UK property business)—

(a) section 97 (meaning of “qualifying payment”),

(b) section 98 (meaning of “qualifying event” etc),

(ba) section 98A (denial of relief for tax-generated payments or events),

(d) section 100 (prohibition against double counting).

Treating excess post-cessation property relief as CGT loss

126

A person who cannot deduct all of an amount under a claim for post-cessation property relief may be able to treat the unused part as an allowable loss for capital gains tax purposes: see sections 261D and 261E of TCGA 1992.

...

UK furnished holiday lettings business treated as trade

127

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 5 — Losses in an employment or office

Employment loss relief against general income

128

(1) A person may make a claim for employment loss relief against general income if the person—

(a) is in employment or holds an office in a tax year, and

(b) makes a loss in the employment or office in the tax year (“the loss-making year”).

(2) The claim is for the loss to be deducted in calculating the person's net income—

(a) for the loss-making year,

(b) for the previous tax year, or

(See Step 2 of the calculation in section 23.)

(3) If the claim is made in relation to both tax years, the claim must specify the year for which a deduction is to be made first.

(4) Otherwise the claim must specify either the loss-making year or the previous tax year.

(5) The claim must be made on or before the first anniversary of the normal self-assessment filing date for the loss-making year.

(5A) No claim may be made in respect of the loss if and to the extent that it is made as a result of anything done in pursuance of arrangements the main purpose, or one of the main purposes, of which is the avoidance of tax.

(6) Nothing in this section prevents a person who makes a claim specifying a particular tax year in respect of a loss from making a further claim specifying the other tax year in respect of the unused part of the loss.

(7) This Chapter is subject to paragraph 2 of Schedule 1B to TMA 1970 (claims for loss relief involving two or more years).

(8) This section needs to be read with section 129 (how relief works).

How relief works

129

(1) This subsection explains how the deductions are to be made.

The amount of the loss to be deducted at any step is limited in accordance with sections 24A and 25(4) and (5).

Step 1

Deduct the loss in calculating the person's net income for the specified tax year.

Step 2

This step applies only if the claim is made in relation to both tax years.

Deduct the part of the loss not deducted at Step 1 in calculating the person's net income for the other tax year.

(2) There is a priority rule if a person—

(a) makes a claim for employment loss relief against general income (“the first claim”) in relation to the loss-making year, and

(b) makes a separate claim in respect of a loss made in the following tax year in relation to the same tax year as the first claim.

(3) The rule is that priority is given to making deductions under the first claim.

(4) For this purpose a “separate claim” means—

(a) a claim for employment loss relief against general income, or

(b) a claim for trade loss relief against general income (see sections 64 to 70).

Treating loss in employment or office as CGT loss

130

A person who cannot deduct all of a loss in an employment or office under a claim for employment loss relief against general income may be able to treat the unused part as an allowable loss for capital gains tax purposes: see sections 261B and 261C of TCGA 1992.

Chapter 6 — Losses on disposal of shares

131

(1) An individual is eligible for relief under this Chapter (“share loss relief”) if—

(a) the individual incurs an allowable loss for capital gains tax purposes on the disposal of any shares in any tax year (“the year of the loss”), and

(b) the shares are qualifying shares.

This is subject to subsections (3) and (4) and section 136(2).

(2) Shares are qualifying shares for the purposes of this Chapter if—

(a) EIS relief is attributable to them, or

(b) if EIS relief is not attributable to them, they are shares in a qualifying trading company which have been subscribed for by the individual.

(3) Subsection (1) applies only if the disposal of the shares is—

(a) by way of a bargain made at arm's length,

(b) by way of a distribution in the course of dissolving or winding up the company,

(d) a deemed disposal under section 24(2) of that Act (claim that value of the asset has become negligible).

(4) Subsection (1) does not apply to any allowable loss incurred on the disposal if—

(a) the shares are the subject of an exchange or arrangement of the kind mentioned in section 135 or 136 of TCGA 1992 (company reconstructions etc), and

(b) because of section 137 of that Act, the exchange or arrangement involves a disposal of the shares.

Entitlement to claim

132

(1) An individual who is eligible for share loss relief may make a claim for the loss to be deducted in calculating the individual's net income—

(a) for the year of the loss,

(b) for the previous tax year, or

(See Step 2 of the calculation in section 23.)

(2) If the claim is made in relation to both tax years, the claim must specify the year for which a deduction is to be made first.

(3) Otherwise the claim must specify either the year of the loss or the previous tax year.

(4) The claim must be made on or before the first anniversary of the normal self-assessment filing date for the year of the loss.

How relief works

133

(1) This subsection explains how the deductions are to be made.

The amount of the loss to be deducted at any step is limited in accordance with sections 24A and 25(4) and (5) .

Step 1

Deduct the loss in calculating the individual's net income for the specified tax year.

Step 2

This step applies only if the claim is made in relation to both tax years.

Deduct the part of the loss not deducted at Step 1 in calculating the individual's net income for the other tax year.

(2) Subsection (1) is subject to sections 136(5) and 147 (which set limits on the amounts of share loss relief that may be obtained in particular cases).

(3) If an individual—

(a) makes a claim for share loss relief against income (“the first claim”) in relation to the year of the loss, and

(b) makes a separate claim for share loss relief against income in respect of a loss made in the following tax year in relation to the same tax year as the first claim,

priority is to be given to making deductions under the first claim.

(4) Any share loss relief claimed in respect of any income has priority over any relief claimed in respect of that income under section 64 (deduction of losses from general income) or 72 (early trade losses relief).

(5) A claim for share loss relief does not affect any claim for a deduction under TCGA 1992 for so much of the allowable loss as is not deducted under subsection (1).

Shares to which EIS relief is not attributable

Qualifying trading companies

134

(1) In relation to shares to which EIS relief is not attributable (see section 131(2)(b)), a qualifying trading company is a company which meets each of conditions A to C.

(2) Condition A is that the company either—

(a) meets each of the following requirements on the date of the disposal—

(i) the trading requirement (see section 137),

(ii) the control and independence requirement (see section 139),

(iii) the qualifying subsidiaries requirement (see section 140), and

(iv) the property managing subsidiaries requirement (see section 141), or

(b) has ceased to meet any of those requirements at a time which is not more than 3 years before that date and has not since that time been an excluded company, an investment company or a trading company.

(3) Condition B is that the company either—

(a) has met each of the requirements mentioned in condition A for a continuous period of 6 years ending on that date or at that time, or

(b) has met each of those requirements for a shorter continuous period ending on that date or at that time and has not before the beginning of that period been an excluded company, an investment company or a trading company.

(4) Condition C is that the company—

(a) met the gross assets requirement (see section 142) both immediately before and immediately after the issue of the shares in respect of which the share loss relief is claimed, and

(b) met the unquoted status requirement (see section 143) at the relevant time within the meaning of that section.

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Subscriptions for shares

135

(1) This section has effect in relation to shares to which EIS relief is not attributable.

(2) An individual subscribes for shares in a company if they are issued to the individual by the company in consideration of money or money's worth.

(3) If—

(a) an individual (“A”) subscribed for, or is treated under subsection (4) or this subsection as having subscribed for, any shares,

(b) A transferred the shares to another individual (“B”) during their lives, and

B is treated as having subscribed for the shares.

(4) If—

(a) an individual has subscribed for, or is treated under subsection (3) or this subsection as having subscribed for, any shares, and

(b) any corresponding bonus shares are subsequently issued to the individual,

the individual is treated as having subscribed for the bonus shares.

Disposals of new shares

136

(1) This section has effect in relation to shares to which EIS relief is not attributable.

(2) If—

(a) an individual disposes of shares (“the new shares”), and

(b) the new shares are, by virtue of section 127 of TCGA 1992 (reorganisation etc treated as not involving disposal), identified with other shares (“the old shares”) previously held by the individual,

the individual is not eligible for share loss relief on the disposal of the new shares unless condition A or B is met.

This is subject to section 145(3).

(3) Condition A is that the individual would have been eligible for share loss relief on a disposal of the old shares—

(a) if the individual had incurred an allowable loss in disposing of them by way of a bargain made at arm's length on the occasion of the disposal that would have occurred but for section 127 of TCGA 1992, and

(b) where applicable, if this Chapter had then been in force.

(4) Condition B is that the individual gave for the new shares consideration in money or money's worth other than consideration of the kind mentioned in paragraph (a) or (b) of section 128(2) of TCGA 1992 (“new consideration”).

(5) If the individual relies on condition B, the amount of share loss relief on the disposal of the new shares must not exceed the amount or value of the new consideration taken into account as a deduction in calculating the amount of the loss incurred on the disposal.

Qualifying trading companies: the requirements

The trading requirement

137

(1) The trading requirement is that—

(a) the company, ignoring any incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, or

(b) the company is a parent company and the business of the group does not consist wholly or as to a substantial part in the carrying on of non-qualifying activities.

(2) If the company intends that one or more other companies should become its qualifying subsidiaries with a view to their carrying on one or more qualifying trades—

(a) the company is treated as a parent company for the purposes of subsection (1)(b), and

(b) the reference in subsection (1)(b) to the group includes the company and any existing or future company that will be its qualifying subsidiary after the intention in question is carried into effect.

This subsection does not apply at any time after the abandonment of that intention.

(3) For the purpose of subsection (1)(b) the business of the group means what would be the business of the group if the activities of the group companies taken together were regarded as one business.

(4) For the purpose of determining the business of a group, activities are ignored so far as they are activities carried on by a mainly trading subsidiary otherwise than for its main purpose.

(5) For the purposes of determining the business of a group, activities of a group company are ignored so far as they consist in—

(a) the holding of shares in or securities of a qualifying subsidiary of the parent company,

(b) the making of loans to another group company,

(c) the holding and managing of property used by a group company for the purpose of one or more qualifying trades carried on by a group company, or

(d) the holding and managing of property used by a group company for the purpose of research and development from which it is intended—

(i) that a qualifying trade to be carried on by a group company will be derived, or

(ii) that a qualifying trade carried on or to be carried on by a group company will benefit.

(6) Any reference in subsection (5)(d)(i) or (ii) to a group company includes a reference to any existing or future company which will be a group company at any future time.

(7) In this section—

“excluded activities” has the meaning given by section 192 read with sections 193 to 199,

“group” means a parent company and its qualifying subsidiaries,

“group company”, in relation to a group, means the parent company or any of its qualifying subsidiaries,

“incidental purposes” means purposes having no significant effect (other than in relation to incidental matters) on the extent of the activities of the company in question,

“mainly trading subsidiary” means a subsidiary which, apart from incidental purposes, exists wholly for the purpose of carrying on one or more qualifying trades, and any reference to the main purpose of such a subsidiary is to be read accordingly,

“non-qualifying activities” means—excluded activities, andactivities (other than research and development) carried on otherwise than in the course of a trade,

“parent company” means a company that has one or more qualifying subsidiaries,

“qualifying subsidiary” is to be read in accordance with section 191,

“qualifying trade” has the meaning given by section 189, and

“research and development” has the meaning given by section 1006.

(8) In sections 189(1)(b) and 194(4)(c) (as applied by subsection (7) for the purposes of the definitions of “excluded activities” and “qualifying trade”) “period B” means the continuous period that is relevant for the purposes of section 134(3).

(9) In section 195 as applied by subsection (7) for the purposes mentioned in subsection (8), references to the issuing company are to be read as references to the company mentioned in subsection (1).

Ceasing to meet trading requirement because of administration or receivership

138

(1) A company is not regarded as ceasing to meet the trading requirement merely because of anything done in consequence of the company or any of its subsidiaries being in administration or receivership.

This has effect subject to subsections (2) and (3).

(2) Subsection (1) applies only if—

(a) the entry into administration or receivership, and

(b) everything done as a result of the company concerned being in administration or receivership,

is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(3) A company ceases to meet the trading requirement if before the time that is relevant for the purposes of section 134(2)—

(a) a resolution is passed, or an order is made, for the winding up of the company or any of its subsidiaries (or, in the case of a winding up otherwise than under the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989, any other act is done for the like purpose), or

(b) the company or any of its subsidiaries is dissolved without winding up.

This is subject to subsection (4).

(4) Subsection (3) does not apply if —

(a) the winding up is for genuine commercial reasons, and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax, and

(b) the company continues, during the winding up, to be a trading company.

(5) References in this section to a company being “in administration” or “in receivership” are to be read in accordance with section 252.

The control and independence requirement

139

(1) The control element of the requirement is that—

(a) the company must not control (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary of the company, and

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Income Tax Act 2007

Determining losses in previous tax years

70

Use of trading loss as CGT loss

Treating trade losses as CGT losses

71

Early trade losses relief

Relief for individuals for losses in first 4 years of trade

72

How relief works

73

Restrictions on relief unless trade is commercial etc

74

Restrictions on sideways relief for certain capital allowances

Trade leasing allowances given to individuals

75

First-year allowances: introduction

76

First-year allowances: partnerships with companies

77

First-year allowances: arrangements to reduce tax liabilities

78

Capital allowances restrictions: supplementary

79

Restriction on sideways relief for specific trades

Ring fence income

80

Dealings in commodity futures

81

Exploitation of films

82

Carry-forward trade loss relief

Carry forward against subsequent trade profits

83

How relief works

84

Use of trade-related interest and dividends if trade profits insufficient

85

Trade transferred to a company

86

Ring fence trades

87

Carry forward of certain interest as loss

88

Terminal trade loss relief

Carry back of losses on a permanent cessation of a trade

89

Losses that are “terminal losses”

90

How relief works

91

Use of trade-related interest and dividends if trade profits insufficient

92

Mineral extraction trade and carry back of balancing allowances

93

Carry back of certain interest as loss

94

Wholly foreign trades

Foreign trades etc: reliefs only against foreign income

95

Post-cessation trade relief

Post-cessation trade relief

96

Meaning of “qualifying payment”

97

Meaning of “qualifying event” etc

98

Reduction of relief for unpaid trade expenses

99

Prohibition against double counting

100

Treating excess post-cessation trade relief as CGT loss

101

Chapter 3 — Restrictions on trade loss relief for certain partners

Introduction

Overview of Chapter

102

Meaning of “sideways relief”, “capital gains relief” and “firm”

103

Limited partners