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Income Tax Bill


Income Tax Bill
Part 4 — Loss relief
Chapter 2 — Trade losses

47

 

(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

5

of the debt, the person may not specify another tax year in respect of it.

99      

Reduction of relief for unpaid trade expenses

(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”).

10

(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.

15

(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

20

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.

25

100     

Prohibition against double counting

(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

30

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

35

the deductions would have been allowed) are exempt under section 524

of this Act.

101     

Treating excess post-cessation trade relief as CGT loss

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

40

gains tax purposes: see sections 261D and 261E of TCGA 1992.

 
 

Income Tax Bill
Part 4 — Loss relief
Chapter 3 — Restrictions on trade loss relief for certain partners

48

 

Chapter 3

Restrictions on trade loss relief for certain partners

Introduction

102     

Overview of Chapter

(1)   

This Chapter restricts the amount of relief that may be given for any loss made

5

by an individual in a trade carried on by the individual as—

(a)   

a limited partner in any tax year (see sections 104 to 106 and section

114),

(b)   

a member of a limited liability partnership (an “LLP”) in any tax year

(see sections 107 to 109 and section 114), or

10

(c)   

a non-active partner in an early tax year (see sections 110 to 114).

(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 sections 115

and 116).

15

(3)   

This Chapter needs to be read with sections 724 to 728 (income tax charge

recovering excess relief for losses made by individuals carrying on a trade in

partnership).

(4)   

See also—

(a)   

sections 729 to 736 (income tax charge in relation to individuals

20

claiming relief for film-related trading losses), and

(b)   

sections 737 to 742 (income tax charge in relation to individuals

carrying on a trade in partnership claiming relief for licence-related

trading losses).

103     

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

25

(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

30

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

35

partnerships).

Limited partners

104     

Restriction on reliefs for limited partners

(1)   

This section applies if—

 
 

Income Tax Bill
Part 4 — Loss relief
Chapter 3 — Restrictions on trade loss relief for certain partners

49

 

(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.

5

(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—

10

(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 basis

period for the relevant tax year (see section 105).

15

(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

20

individual carries on that trade as a non-active partner (see section 112).

(6)   

“The total amount of recovered relief” means the total amount of income

treated as received by the individual under section 725 (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.

25

(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

30

(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.

105     

Meaning of “contribution to the firm”

(1)   

For the purposes of section 104 the individual’s contribution to the firm is the

sum of amounts A and B.

35

(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.

40

(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

45

 
 

Income Tax Bill
Part 4 — Loss relief
Chapter 3 — Restrictions on trade loss relief for certain partners

50

 

(c)   

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

5

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.

10

(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

15

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

20

were references to the relevant trade or any of the other trades.

(11)   

This section needs to be read with any regulations made under section 114

(specified amounts to be excluded in calculating the individual’s contribution

to the firm for the purposes of section 104).

106     

Meaning of “limited partner”

25

(1)   

In this Chapter “limited partner” means an individual who carries on a trade—

(a)   

as a limited partner in a limited partnership registered under the

Limited Partnerships Act 1907 (c. 24),

(b)   

as a partner in a firm who in substance acts as a limited partner in

relation to the trade (see subsection (2)), or

30

(c)   

while the condition mentioned in subsection (3) is met in relation to the

individual.

(2)   

An individual in substance acts as a limited partner in relation to a trade if the

individual—

(a)   

is not entitled to take part in the management of the trade, and

35

(b)   

is entitled to have any liabilities (or those beyond a certain limit) for

debts or obligations incurred for the purposes of the trade met or

reimbursed by some other person.

(3)   

The condition referred to in subsection (1)(c) is that—

(a)   

the individual carries on the trade jointly with other persons,

40

(b)   

under the law of a territory outside the United Kingdom, the individual

is not entitled to take part in the management of the trade, and

(c)   

under that law, the individual is not liable beyond a certain limit for

debts or obligations incurred for the purposes of the trade.

 
 

Income Tax Bill
Part 4 — Loss relief
Chapter 3 — Restrictions on trade loss relief for certain partners

51

 

(4)   

In the case of an individual who is a limited partner as a result of subsection

(1)(c), references in this Chapter to the individual’s firm are to be read as

references to the relationship between the individual and the other persons

mentioned in subsection (3)(a).

Members of LLPs

5

107     

Restriction on reliefs for members of LLPs

(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

10

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 (see section 112)—

(a)   

this section does not apply, and

(b)   

section 110 applies instead.

15

(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

20

(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,

25

   

must not exceed the individual’s contribution to the LLP as at the end of the basis

period for 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

30

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 725 (recovery of excess

35

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

40

(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.

 
 

 
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