BIM75766 - Losses - restriction of relief: Trade losses - non-active traders - annual limit
Sole trader loss relief restrictions apply for losses made on or after 12 March 2008 in a trade carried on by an individual in a non-active capacity. ITA07/S74A imposes an annual limit of £25,000 on the amount of losses for which sideways loss relief can be claimed.
If the trading losses made by a non-active individual are derived from tax avoidance arrangements made in the period 12 March 2008 - 20 October 2009 then no sideways loss relief is due at all ( the £25,000 annual limit does not apply) (ITA07/S74B) see BIM75769.
The annual limit -
- is applied after the other loss restrictions listed in ITA07/Part 4/Chapter 2. Broadly these are;
- uncommercial trades, (see BIM75700 onwards)
- “hobby” farming or market gardening (see BIM75600 onwards)
- certain capital allowances (see BIM75730 & BIM75750-75755)
- ring fenced trades (see BIM75760)
- foreign trades (see BIM75760)
- is reduced by the amount of sideways loss relief given to an individual for losses made as a non-active or limited partner for the tax year see BIM72640 - BIM72650.
- does not apply to, and hence does not restrict relief for, trading losses derived from:
- qualifying film expenditure, see BIM75768
- carrying on a Lloyds underwriting business.
The legislation restricts relief against income from other sources. It does not restrict relief against income derived from the same trade, whether of earlier or later years.
Where losses are claimed against total income of another year of assessment relief is given first (and without restriction) against income from the same trade. The balance of the loss, subject to the £25,000 cap, is relieved against other income.
Where the basis period for the tax year to which the loss relates straddles 12 March 2008 (which may be the case for tax year 2007/08 and/or 2008/09) the £25,000 annual limit does not apply to the “pre-announcement loss” for that period.
Guidance on calculating the “pre-announcement loss” for basis periods straddling 12 March 2008 is at BIM75767.
