LLM5390 - Names: terminal loss relief

Names whose trade as an underwriting member of Lloyd’s has been permanently discontinued are entitled to terminal loss relief (TLR) under ICTA88/S388 and ITA07/S89. The time limit for terminal loss relief claims, as set by TMA70/S43, is 31 January five years after the end of the tax year in which permanent discontinuance is deemed to occur.

Date of permanent discontinuance

The date of permanent discontinuance is defined in regulation 14(2) SI1995/351 as 5 April in the last tax year for which syndicate results are included in the Name’s Lloyd’s trading results, except where a Name has entered into a quota share contract (see LLM5400). The date of resignation, the date of death, and the date of repayment of the deposit are not relevant in determining the date of permanent discontinuance for terminal loss relief purposes.

For example, a Name’s last open syndicates closed 31 December 2005, the results were declared in 2006 and are assessable 2006-2007. The deemed discontinuance of the trade is 5 April 2007.

Amount of terminal loss relief

The amount of the terminal loss available for relief is the loss sustained in the 12 months running up to the date of permanent discontinuance, to the extent that relief has not otherwise been given for the loss. As discontinuance is deemed to have occurred on 5 April, the 12 month period is the tax year in which the discontinuance is deemed to have occurred. Under the corresponding year rule, the loss sustained in that tax year is the Lloyd’s trading result for the calendar year that ends in that tax year.

In the above example the terminal loss is the trading loss of the year to 31 December 2006. This is made up of syndicate results declared in 2006 (2003 account and run off syndicates to 31 December 2005) and non-syndicate receipts and expenses paid in 2006.

Relevant capital allowances

Capital allowances can be deducted as a business expense in arriving at the trading result, and will not feature as a separate item in the computation of the amount of terminal loss. In practice Names seldom have assets of a Lloyd’s trade on which capital allowances can be claimed.

Method of giving relief

Relief for the terminal loss is given against Lloyd’s profits of the three tax years which precede the tax year in which the discontinuance is deemed to have occurred. Relief is given in later years before being given in earlier years (explained in BIM75480 – see LLM10000)).

Amendments made to the terminal loss relief rules for cessations in 1997-98 and later (to allow terminal losses to be relieved against profits from the same trade in the year of discontinuance), have no practical effect for Names. This is because a terminal loss relief claim is not possible if Lloyd’s profits arise in the year of deemed discontinuance - it is the loss of that tax year that is the terminal loss.

Terminal loss relief and death

As with surviving Names, the trade is deemed to be permanently discontinued on 5 April in the last tax year in which syndicate results are included in the trading results. This can be a tax year after the Name has died. Even so, the terminal loss can be carried back up to three years and offset against underwriting profits taxable in years when the Name was alive. This is because, on death, the Name’s personal representatives are treated as carrying on the same trade as did the Name, with no change in the persons carrying on that trade.