|
| |
|
Use of trading loss as CGT loss |
| |
71 | Treating trade losses as CGT losses |
| |
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. |
| 5 |
Early trade losses relief |
| |
72 | Relief for individuals for losses in first 4 years of trade |
| |
(1) | An individual may make a claim for early trade losses relief if the individual |
| |
| |
(a) | in the tax year in which the trade is first carried on by the individual, or |
| 10 |
(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- |
| 15 |
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), |
| 20 |
(c) | sections 75 to 79 (restrictions on the relief and trade loss relief against |
| |
general income in relation to capital allowances), |
| |
(d) | section 80 (restrictions on those reliefs in relation to ring fence income), |
| |
(e) | section 81 (restrictions on those reliefs in relation to dealings in |
| |
| 25 |
(f) | section 734 of ICTA (restrictions on those reliefs in relation to bond- |
| |
| |
| |
This section explains how the deductions are made for the 3 tax years |
| |
mentioned in section 72(2). |
| 30 |
The amount of the loss to be deducted at any step is limited in accordance with |
| |
| |
| |
Deduct the loss in calculating the individual’s net income for the earliest of the |
| |
| 35 |
| |
Deduct any part of the loss not deducted at Step 1 in calculating the |
| |
individual’s net income for the next tax year. |
| |
|
| |
|
| |
|
| |
Deduct any part of the loss not deducted at Step 1 or 2 in calculating the |
| |
individual’s net income for the latest of the 3 tax years. |
| |
| |
If the loss has not been deducted in full at Steps 1 to 3, the individual may use |
| 5 |
the part not so deducted in giving effect to any other relief under this Chapter |
| |
(depending on the terms of the relief). |
| |
74 | Restrictions on relief unless trade is commercial etc |
| |
(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. |
| 10 |
(2) | The trade is commercial if it is carried on throughout the basis period for the |
| |
| |
(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 basis period or within a reasonable time afterwards. |
| 15 |
(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 |
| 20 |
| |
(b) | the spouse or civil partner previously carried on the trade, and |
| |
(c) | the loss is made in a tax year falling after the relevant 4 year period. |
| |
(5) | The relevant 4 year period comprises— |
| |
(a) | the tax year in which the spouse or civil partner first carried on the |
| 25 |
| |
(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 |
| |
75 | Trade leasing allowances given to individuals |
| 30 |
(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 |
| |
| |
(2) | A trade leasing allowance is an allowance made under Part 2 of CAA 2001 in |
| |
| 35 |
(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— |
| 40 |
| |
|
| |
|
| |
|
| |
| 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 basis period for the tax |
| 5 |
year in which the loss was made (“the loss-making basis period”). |
| |
(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 |
| |
loss-making basis period (if the individual starts or permanently ceases |
| 10 |
to carry on the trade in the tax year (or does both)), or |
| |
(b) | throughout the loss-making basis period (in any other case). |
| |
76 | First-year allowances: introduction |
| |
Sideways relief is not available to an individual for so much of a loss as derives |
| |
from a first-year allowance under Part 2 of CAA 2001 if either section 77 or 78 |
| 15 |
| |
77 | First-year allowances: partnerships with companies |
| |
(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 |
| 20 |
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. |
| |
| 25 |
(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. |
| 30 |
78 | First-year allowances: arrangements to reduce tax liabilities |
| |
(1) | This section applies if— |
| |
(a) | the 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. |
| 35 |
(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. |
| 40 |
(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— |
| |
| |
| 5 |
| 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. |
| 10 |
79 | Capital allowances restrictions: supplementary |
| |
(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 |
| 15 |
(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 |
| |
| |
(1) | This section applies if— |
| 20 |
(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. |
| 25 |
(3) | “Oil extraction activities” and “oil rights” have the same meaning as in Chapter |
| |
5 of Part 12 of ICTA (see section 502 of that Act). |
| |
81 | Dealings in commodity futures |
| |
(1) | This section applies if— |
| |
(a) | a person makes a loss in a trade of dealing in commodity futures, |
| 30 |
(b) | the person carried on the trade as a partner in a firm, |
| |
(c) | the person or one or more of the other partners in the firm was a |
| |
| |
(d) | arrangements within subsection (3) have been made. |
| |
(2) | Sideways relief is not available for the loss. |
| 35 |
(3) | Arrangements are within this subsection if as a result of them— |
| |
| |
| |
|
| |
|
| |
|
| that might be expected to arise to the person from the person’s interest in the |
| |
firm is the obtaining of a reduction in tax liability by means of sideways relief. |
| |
(4) | It does not matter whether the arrangements were made in the partnership |
| |
agreement or in any other way. |
| |
(5) | References to making arrangements include effecting schemes. |
| 5 |
(6) | If relief is given in a case to which this section applies, the relief is withdrawn |
| |
by the making of an assessment to income tax under this section. |
| |
(7) | “Commodity futures” means commodity futures that are for the time being |
| |
dealt in on a recognised futures exchange (within the meaning of ITTOIA 2005, |
| |
see section 558(3) of that Act). |
| 10 |
| |
In the case of a trade carried on by an individual which consists of or includes |
| |
the exploitation of films— |
| |
(a) | see sections 115 and 116 for a restriction on sideways relief if the trade |
| |
was carried on by the individual as a partner in a firm, and |
| 15 |
(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 |
| |
83 | Carry forward against subsequent trade profits |
| 20 |
(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). |
| 25 |
(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 |
| |
| |
(3) | But a deduction for that purpose is to be made only from profits of the trade. |
| 30 |
(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). |
| 35 |
(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 |
| |
| |
(c) | section 86 (trade transferred to a company), |
| 40 |
(d) | section 87 (ring fence trades), |
| |
(e) | section 88 (carry forward of certain interest as loss), and |
| |
|
| |
|
| |
|
(f) | sections 17(3) and 852(7) of ITTOIA 2005 (effect of becoming or ceasing |
| |
| |
| |
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 |
| 5 |
accordance with section 25(4) and (5). |
| |
| |
Deduct the unrelieved loss from the profits of the trade of the next tax year. |
| |
| |
Deduct from the profits of the trade of the following tax year the amount of the |
| 10 |
unrelieved loss not previously deducted. |
| |
| |
Continue to apply Step 2 in relation to the profits of the trade of subsequent tax |
| |
years until all the unrelieved loss is deducted. |
| |
85 | Use of trade-related interest and dividends if trade profits insufficient |
| 15 |
(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. |
| 20 |
(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 |
| |
| 25 |
86 | Trade transferred to a company |
| |
(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, |
| 30 |
(c) | the consideration for the transfer is wholly or mainly the allotment of |
| |
shares to the individual or individuals, and |
| |
(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 |
| 35 |
| |
(2) | For the purposes of carry-forward trade loss relief, the income so derived is |
| |
| |
(a) | profits of the trade of the relevant tax year carried on by the individual, |
| |
| 40 |
(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 |
| |
| |
(b) | the company carries on the trade, |
| |
| throughout the period beginning with the date of the transfer and ending with |
| 5 |
| |
(4) | Otherwise a tax year is a relevant one if— |
| |
(a) | the individual is the beneficial owner of the shares allotted as |
| |
| |
(b) | the company carries on the trade, |
| 10 |
| |
(5) | The income derived from the company may be by way of dividends on the |
| |
| |
(6) | This section applies to businesses which are not trades as it applies to trades. |
| |
| 15 |
(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, |
| 20 |
(c) | the person makes profits in a subsequent tax year from other activities, |
| |
| |
(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 |
| 25 |
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). |
| |
88 | Carry forward of certain interest as loss |
| |
(1) | This section applies if— |
| |
(a) | an individual pays interest in a tax year which is eligible for relief under |
| 30 |
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, |
| |
| |
(c) | relief under section 383 cannot be fully given in respect of the interest |
| 35 |
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. |
| 40 |
|
| |
|