BIM72612 - Partnerships: loss relief restrictions: annual limit: basis periods straddling 2 March 2007

Where the partner’s basis period to which the losses relate straddles 2 March 2007 (which may be the case for tax year 2006/07 and/or 2007/08) the £25,000 annual limit does not apply to “pre-announcement losses” for that period.

Pre-announcement losses

The rules for calculating pre-announcement losses (to which the £25,000 annual limit does not apply) differ depending on whether the losses are derived from:

• capital allowances; or
• revenue expenditure deducted in accounts prepared in accordance with generally accepted accounting practice (GAAP deductions).

Pre-announcement losses – derived from capital allowances

Losses derived from capital allowances are pre-announcement losses if the expenditure giving rise to the capital allowances was paid by the partnership either:

• before 2 March 2007; or
• on or after 2 March 2007 to meet an unconditional obligation in a contract made before 2 March 2007 which the partnership does not have the right to vary or extinguish.

See BIM72613 Example 1.

Pre-announcement losses – derived from GAAP deductions

Whether losses derived from GAAP deductions are pre-announcement losses depends on when (before or during the basis period straddling 2 March 2007) the partner first contributed any capital to the partnership.

Where the partner’s first capital contribution was paid on or after 2 March 2007 – none of the losses derived from GAAP deductions will be pre-announcement losses, and so the £25,000 annual limit for sideways loss relief will apply to all of the partner’s losses for a basis period which straddles 2 March 2007 - see BIM72613 Example 2.

Where the partner’s first capital contribution was paid before 2 March 2007 – a proportion of the partner’s losses derived from GAAP deductions will be pre-announcement losses (to which the £25,000 annual limit does not apply):

• where the partner’s first capital contribution was paid before 2 March 2007 but after the start of their basis period which straddles 2 March 2007, the pre-announcement losses are calculated by reference to the number of days on or after the date the contribution was paid which fall before 2 March 2007, as a proportion of the total number of days in the basis period – see BIM72613 Example 3.
• where the partner’s first capital contribution was paid on or before the first day of their basis period which straddles 2 March 2007, the pre-announcement losses are calculated by reference to the number of days in the basis period which fall before 2 March 2007, as a proportion of the total number of days in the basis period – see BIM72613 Example 4.