BIM72645 - Computing the amount to assess: Partnerships - loss relief restrictions: Non-active partners - example

On 1 April 2004 Z becomes a partner in a general partnership on a non-active basis, introducing capital of £10,000.

Z’s share of the partnership profits and losses is:


Year ended 31 March 2005 Loss (£15,000)
Year ended 31 March 2006 Loss (£10,000)
Year ended 31 March 2007 Profit £10,000
Year ended 31 March 2008 Profit £20,000
Year ended 31 March 2009 Loss (£75,000)

Z is entitled to sideways relief for losses as follows:


2004/2005 £10,000 (a) (unrelieved loss £5,000)
2005/2006 Nil (b) (unrelieved loss £10,000 + £5,000 = £15,000)
2006/2007 N/A (£10,000 of unrelieved losses brought forward set against trading profits under ITA07/S83)
2007/2008 N/A (£5,000 of unrelieved losses brought forward set against trading profits under ITA07/S83)
2008/2009 £25,000 (c)  

(a) Sideways loss relief restricted to capital contribution at 31 March 2005 (£10,000). The balance of the loss of £5,000 (£15,000 - £10,000) is carried forward.

(b) No sideways loss relief of £5,000 is available as capital contribution at 31 March 2006 (£10,000) does not exceed total sideways relief given for earlier years.

(c) No restriction on sideways loss relief by reference to capital contributions as 2008/09 is not an early year of trading, but £25,000 annual limit applies. The £50,000 balance of the loss can only be carried forward to set against profits of the same trade for later years under ITA07/S83. Losses restricted by the annual limit are not “unrelieved losses” available for sideways loss relief in later years, see BIM72650.