Office of Public Sector Information
(1) This Part provides for income tax relief for—
(a) losses in a trade, profession or vocation (and certain post-cessation payments and events) (see Chapters 2 and 3),
(b) losses in a UK property business or overseas property business (and, in the case of a UK property business, certain post-cessation payments and events) (see Chapter 4),
(c) losses in an employment or office (see Chapter 5),
(d) losses on a disposal of certain shares (see Chapter 6), and
(e) losses in certain miscellaneous transactions (see Chapter 7).
(2) This Part needs to be read with Chapter 3 of Part 2 (calculation of income tax liability).
(3) For rules about the calculation of losses for the purposes of this Part, see—
(a) section 26 of ITTOIA 2005 (losses of a trade, profession or vocation calculated on same basis as profits),
(b) section 272 of ITTOIA 2005 (which applies section 26 of that Act, so that losses of a UK property business or overseas property business are calculated on the same basis as profits),
(c) section 11 of ITEPA 2003 (calculation of “net taxable earnings”), and
(d) section 872 of ITTOIA 2005 (losses from miscellaneous transactions calculated on same basis as miscellaneous income).
(1) This Chapter—
(a) provides for trade loss relief against general income (see sections 64 to 70),
(b) provides for early trade losses relief (see sections 72 to 74),
(c) contains provision restricting both those reliefs (see sections 75 to 82),
(d) provides for carry-forward trade loss relief (see sections 83 to 88),
(e) provides for terminal trade loss relief (see sections 89 to 94),
(f) contains restrictions on the above reliefs for trades, professions and vocations carried on wholly outside the United Kingdom (see section 95), and
(g) provides for post-cessation trade relief (see sections 96 to 100).
(2) This Chapter is subject to paragraph 2 of Schedule 1B to TMA 1970 (claims for loss relief involving two or more years).
(3) For a rule treating an individual as starting or permanently ceasing to carry on a trade, profession or vocation for income tax purposes (including those of this Part), see—
(a) section 17 of ITTOIA 2005 (effect of becoming or ceasing to be a UK resident), and
(b) section 852(6) and (7) of ITTOIA 2005 (corresponding rule in the case of a trade or profession carried on by a firm).
(4) For the purposes of this Chapter sideways relief is—
(a) trade loss relief against general income, or
(b) early trade losses relief.
(5) 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).
(1) This section applies if a trade, profession or vocation is carried on by a person otherwise than as a partner in a firm.
(2) For the purposes of this Chapter any reference to the person making a loss in the trade, profession or vocation in a tax year is to the person making a loss in the trade, profession or vocation in the basis period for the tax year.
(3) This section is subject to section 70 (restriction on trade loss relief against general income in case of farming or market gardening).
(4) For the rules about basis periods, see Chapter 15 of Part 2 of ITTOIA 2005.
(5) In particular, see the rule in section 206 of ITTOIA 2005 (restriction on bringing losses into account twice).
(1) This section applies if a trade or profession is carried on by a person as a partner in a firm.
(2) Any reference to a person making a loss in a trade or profession in a tax year is to the partner making a loss in the partner’s notional trade in the basis period for the tax year (as to which, see sections 852 and 853 of ITTOIA 2005).
(3) Further—
(a) any reference to a person making a claim for relief for a loss made in a trade or profession is to the partner making a claim for relief for a loss made in the partner’s notional trade,
(b) any reference to a basis period for a tax year is to the basis period for the partner’s notional trade for the tax year,
(c) any reference to the profits or losses of a partner’s notional trade of a tax year is to the partner’s share of the firm’s profits or losses of the trade or profession treated for the purposes of Chapter 15 of Part 2 of ITTOIA 2005 as the profits or losses of the partner’s notional trade in the basis period for the tax year,
(d) any reference to a person starting to carry on a trade or profession is to the partner starting to carry on the notional trade in accordance with section 852(2) or (3) of ITTOIA 2005, and
(e) any reference to a person permanently ceasing to carry on a trade or profession is to the partner permanently ceasing to carry on the notional trade in accordance with section 852(4) to (6) of ITTOIA 2005.
(4) In this section a partner’s “notional trade” has the same meaning as in Part 9 of ITTOIA 2005.
(5) This section applies for the purposes of this Chapter and Chapter 3, except that it does not apply for the purposes of section 67(2) or sections 68 to 70 (restriction on trade loss relief against general income in case of farming or market gardening).
If relief is given under any provision of this Chapter for a loss or part of a loss, relief is not to be given for—
(a) the same loss, or
(b) the same part of the loss,
under any other provision of this Chapter or of the Income Tax Acts.
(1) A person may make a claim for trade loss relief against general income if the person—
(a) carries on a trade in a tax year, and
(b) makes a loss in the trade 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
(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 tax 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.
(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 section applies to professions and vocations as it applies to trades.
(8) This section needs to be read with—
(a) section 65 (how relief works),
(b) sections 66 to 70 (restrictions on the relief),
(c) sections 75 to 79 (restrictions on the relief and early trade losses relief 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 commodity futures), and
(f) section 734 of ICTA (restrictions on those reliefs in relation to bond-washing).
(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).
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.
Other claims
If the loss has not been deducted in full at Steps 1 and 2, the person may use the part not so deducted in giving effect to any other relief under this Chapter (depending on the terms of the relief).
(2) There is a priority rule if a person—
(a) makes a claim for trade 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 trade loss relief against general income, or
(b) a claim for employment loss relief against general income under section 128.
(1) Trade loss relief against general income for a loss made 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 basis period for the tax year—
(a) on a commercial basis, and
(b) with a view to the realisation of profits of the trade.
(3) If at any time a trade is carried on so as to afford a reasonable expectation of profit, it is treated as carried on at that time with a view to the realisation of profits.
(4) If the trade forms part of a larger undertaking, references to profits of the trade are to be read as references to profits of the undertaking as a whole.
(5) If there is a change in the basis period in the way in which the trade is carried on, the trade is treated as carried on throughout the basis period in the way in which it is carried on by the end of the basis period.
(6) The restriction imposed by this section does not apply to a loss made in the exercise of functions conferred by or under an Act.
(7) This section applies to professions and vocations as it applies to trades.
(1) This section applies if a loss is made in a trade of farming or market gardening in a tax year (“the current tax year”).
(2) Trade loss relief against general income is not available for the loss if a loss, calculated without regard to capital allowances, was made in the trade in each of the previous 5 tax years (see section 70).
(3) This section does not prevent relief for the loss from being given if—
(a) the carrying on of the trade forms part of, and is ancillary to, a larger trading undertaking,
(b) the farming or market gardening activities meet the reasonable expectation of profit test (see section 68), or
(c) the trade was started, or treated as started, at any time within the 5 tax years before the current tax year (see section 69 below, as well as section 17 of ITTOIA 2005).
(1) This section explains how the farming or market gardening activities (“the activities”) meet the reasonable expectation of profit test for the purposes of section 67.
(2) The test is decided by reference to the expectations of a competent farmer or market gardener (a “competent person”) carrying on the activities.
(3) The test is met if—
(a) a competent person carrying on the activities in the current tax year would reasonably expect future profits (see subsection (4)), but
(b) a competent person carrying on the activities at the beginning of the prior period of loss (see subsection (5)) could not reasonably have expected the activities to become profitable until after the end of the current tax year.
(4) In determining whether a competent person carrying on the activities in the current tax year would reasonably expect future profits regard must be had to—
(a) the nature of the whole of the activities, and
(b) the way in which the whole of the activities were carried on in the current tax year.
(5) “The prior period of loss” means—
(a) the 5 tax years before the current tax year, or
(b) if losses in the trade, calculated without regard to capital allowances, were also made in successive tax years before those 5 tax years (see section 70), the period comprising both the successive tax years and the 5 tax years.
(1) This section applies for the purposes of sections 67 and 68.
(2) If there is a change in the persons carrying on a trade which involves all of the persons carrying it on before the change permanently ceasing to carry it on—
(a) the trade is treated as permanently ceasing to be carried on, and
(b) a new trade is treated as starting to be carried on,
at the date of the change (but see subsections (3) to (6)).
(3) A husband and wife are treated as the same person.
(4) Persons who are civil partners of each other are treated as the same person.
(5) A husband or wife is treated as the same person as—
(a) a company of which either one of them has control, or
(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” has the same meaning as in Part 11 of ICTA (see section 416 of that Act).
(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) The loss made in a tax year before the current tax year is not taken to be the loss (if any) made in the basis period for the tax year, but is instead the loss made in the tax year itself.
(3) This 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 203(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 basis periods are read as references to tax years and references to periods of account are read as including accounting periods.
(5) The steps must be taken in accordance with section 203(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.
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.
(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),
(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 commodity futures), and
(f) section 734 of ICTA (restrictions on those reliefs in relation to bond-washing).
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 section 25(4) and (5).
Step 1
Deduct the loss in calculating the individual’s net income for the earliest of the 3 tax years.
Step 2
Deduct any part of the loss not deducted at Step 1 in calculating the individual’s net income for the next tax year.
Step 3
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.
Other claims
If the loss has not been deducted in full at Steps 1 to 3, the individual may use the part not so deducted in giving effect to any other relief under this Chapter (depending on the terms of the relief).
(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 basis period for 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 basis period 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
(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 trade, and
(b) the next 3 tax years.
(6) This section applies to professions and vocations as it applies to trades.
(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 basis period for the tax 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 to carry on the trade in the tax year (or does both)), or
(b) throughout the loss-making basis period (in any other case).
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 applies.
(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.
(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.
(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.
(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.
(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 same meaning as in Chapter 5 of Part 12 of ICTA (see section 502 of that Act).
(1) This section applies if—
(a) a person makes a loss in a trade of dealing in commodity futures,
(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 company, and
(d) arrangements within subsection (3) have been made.
(2) Sideways relief is not available for the loss.
(3) 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 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.
(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).
Income Tax Act 2007