BIM72635 - Computing the amount to assess: Partnerships - loss relief restrictions: LLP members - unrelieved amounts

A member of an LLP who has had their sideways loss relief restricted to their capital contribution in an earlier tax year, may obtain relief for “unrelieved losses” if they make a further capital contribution (ITA07/S109 and ITA07/S113).

There are similar rules for the carry forward of unrelieved losses by non-active general partners, see BIM72650.

There are no comparable provisions relating to unrelieved losses of limited partners for which relief has been restricted under ITA07/S104.

Calculating unrelieved losses

Unrelieved losses in any tax year are:

• the total of any losses for previous years which the LLP member has not been able to set off against their total income or gains because of a restriction made by reference to the member’s capital contribution under ITA07/S107 (or S110 for non-active members from 10 February 2004),

• any amounts for which relief has been given in that or any earlier year under any provision of the Tax Acts (or would have been given if a claim had been made).

Losses restricted by the £25,000 annual limit, which applies to non-active LLP members from 2 March 2007, are not unrelieved losses for this purpose and so can only be carried forward and set against future profits from the same trade under ITA07/S83. Guidance on the annual limit is at BIM72611.

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Giving relief for unrelieved losses

The LLP member is entitled to relief for the “unrelieved loss” in the later tax year in which the further capital contribution is made (provided that at the time the further contribution is made they are still a member of the LLP) as if:

• any loss sustained or incurred by the member in that later tax year was increased by an amount equal to the unrelieved loss, or
• if no loss is sustained or incurred, a loss of that amount were sustained or incurred.

The amount of the additional relief given in respect of the “unrelieved loss” for the later tax year should not exceed the further capital contribution made by the LLP member in that year. If there still remains a balance of “unrelieved loss” further relief may be due for a later tax year if a further capital contribution is made in that later year.

The £25,000 annual limit for sideways loss relief (for losses sustained by non-active LLP members on or after 2 March 2007) will apply to an “unrelieved loss” treated as a loss sustained in a later tax year, in the same way as it would apply to an actual loss sustained by the member in that later tax year.

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Example

Y becomes an active member of a LLP on 6 April 2007 and introduces capital of £100,000 into the partnership. The LLP carries on a trade. During the year ended 5 April 2010 he makes a further capital contribution of £60,000.

His share of the LLP's trading loss is as follows:

Y is entitled to ITA07/S64 relief as follows:

1. Sideways loss relief is restricted to the unrelieved capital contribution brought forward of £40,000. The balance of the loss of £20,000 (£60,000 - £40,000) is carried forward as an unrelieved loss.
2. Maximum sideways loss relief of £50,000 (that is the loss of the year £30,000 + unrelieved loss brought forward £20,000) is available to set against Y’s other income or gains for 2009/10 under ITA07/S64 or against Y’s other income for earlier years under ITA07/S72.