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Income Tax Bill


Income Tax Bill
Part 4 — Loss relief
Chapter 4 — Losses from property businesses

59

 

accommodation to be treated as a trade for the purposes of this Part (see section

127).

Carry-forward property loss relief

118     

Carry forward against subsequent property business profits

(1)   

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

5

(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).

10

(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.

15

(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).

119     

How relief works

This section explains how the deductions are to be made.

20

The amount of the loss to be deducted at any step is limited in accordance with

section 25(4) and (5).

Step 1

Deduct the loss from the profits of the business for the next tax year.

25

Step 2

Deduct from the profits of the business for the following tax year the amount

of the loss not previously deducted.

30

Step 3

Continue to apply Step 2 in relation to the profits of the business for subsequent

tax years until all the loss is deducted.

Property loss relief against general income

120     

Deduction of property losses from general income

35

(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

 
 

Income Tax Bill
Part 4 — Loss relief
Chapter 4 — Losses from property businesses

60

 

(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

5

(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

10

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),

15

(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).

121     

How relief works

20

(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 section 25(4) and (5).

   

   

Step 1

25

   

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

30

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

35

   

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,

40

(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

 
 

Income Tax Bill
Part 4 — Loss relief
Chapter 4 — Losses from property businesses

61

 

(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.

122     

Meaning of “the applicable amount of the loss”

(1)   

This section defines “the applicable amount of the loss” for the purposes of

5

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)).

10

(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

15

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

20

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

25

allowances and the amount of the allowable agricultural expenses.

123     

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

has a relevant agricultural connection”

(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—

30

(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.

(3)   

The business has a relevant agricultural connection if—

35

(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—

40

(a)   

which is managed as one estate, and

(b)   

which consists of or includes land occupied wholly or mainly for

purposes of husbandry.

 
 

Income Tax Bill
Part 4 — Loss relief
Chapter 4 — Losses from property businesses

62

 

(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.

5

(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,

10

   

the expenses in respect of those parts are to be reduced so far as those parts are

used for the other purposes.

124     

Supplementary

(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

15

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,

20

   

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     

Post-cessation property relief

(1)   

A person may make a claim for post-cessation property relief if, after

25

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.

30

(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

35

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

40

3 of Part 3 of ITTOIA 2005 in respect of a UK property business, and

 
 

Income Tax Bill
Part 4 — Loss relief
Chapter 4 — Losses from property businesses

63

 

(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

5

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),

(c)   

section 99 (reduction of relief for unpaid trade expenses), and

10

(d)   

section 100 (prohibition against double counting).

126     

Treating excess post-cessation property relief as CGT loss

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.

15

Furnished holiday accommodation

127     

UK furnished holiday lettings business treated as trade

(1)   

This section applies if, in a tax year, a person carries on a UK furnished holiday

lettings business.

(2)   

“UK furnished holiday lettings business” means a UK property business which

20

consists of, or so far as it includes, the commercial letting of furnished holiday

accommodation (within the meaning of Chapter 6 of Part 3 of ITTOIA 2005).

(3)   

For the purposes of this Part (but as modified below) the person is treated

instead as carrying on in the tax year a single trade—

(a)   

which consists of every commercial letting of furnished holiday

25

accommodation comprised in the person’s UK furnished holiday

lettings business, and

(b)   

the profits of which are chargeable to income tax.

(4)   

Chapter 2 applies as if section 75 (trade leasing allowances given to

individuals) were omitted.

30

(5)   

Early trade losses relief is not available to an individual for a loss made in a tax

year if the individual first let any of the relevant accommodation as furnished

accommodation more than 3 years before the beginning of the tax year.

(6)   

Accommodation is relevant if the trade that is treated as carried on in the tax

year consists of or includes the letting of the accommodation.

35

(7)   

If there is a letting of accommodation only part of which is furnished holiday

accommodation, just and reasonable apportionments are to be made for the

purpose of determining what is comprised in the trade treated as carried on.

 
 

Income Tax Bill
Part 4 — Loss relief
Chapter 5 — Losses in an employment or office

64

 

Chapter 5

Losses in an employment or office

128     

Employment loss relief against general income

(1)   

A person may make a claim for employment loss relief against general income

if the person—

5

(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,

10

(b)   

for the previous tax year, or

(c)   

for both tax years.

   

(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.

15

(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.

(6)   

Nothing in this section prevents a person who makes a claim specifying a

20

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).

25

129     

How relief works

(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

section 25(4) and (5).

   

30

   

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.

35

   

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

40

(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.

 
 

Income Tax Bill
Part 4 — Loss relief
Chapter 6 — Losses on disposal of shares

65

 

(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).

5

130     

Treating loss in employment or office as CGT loss

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.

10

Chapter 6

Losses on disposal of shares

Share loss relief against general income

131     

Share loss relief

(1)   

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

15

(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—

20

(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,

25

(b)   

by way of a distribution in the course of dissolving or winding up the

company,

(c)   

a disposal within section 24(1) of TCGA 1992 (entire loss, destruction

dissipation or extinction of asset), or

(d)   

a deemed disposal under section 24(2) of that Act (claim that value of

30

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

35

reconstructions etc), and

(b)   

because of section 137 of that Act, the exchange or arrangement

involves a disposal of the shares.

 
 

 
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