Partnership losses
Partnership losses

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Partnership losses
  • Computation of partnership losses
  • Allocating losses between partners
  • Using partnership losses
  • Individual partners
  • Sideways relief for income tax
  • Capital gains relief
  • Restrictions on income tax relief for limited or non-active partners and members of LLPs
  • Corporate partners
  • Restrictions on corporation tax relief for limited partners and members of LLPs

This Practice Note is about the calculation and use of losses (other than capital losses) made by general partnerships, limited liability partnerships and limited partnerships. For information on capital losses generally, see Practice Note: Capital losses.

Computation of partnership losses

A partnership's losses are calculated using the same principles as would be used for calculating a partnership's profits.

A partnership will draw up its own accounts. Although a partnership is not itself a taxable entity, it will also have to prepare its own tax computations.

Any profit or loss shown in the partnership's accounts will need to be adjusted for tax purposes. In most cases this will increase a profit, reduce a loss, or turn a loss into a profit, because the adjustment will often involve adding back any expenses that are disallowable for tax purposes. Any interest or salary paid to the partners must also be added back.

For more details on calculating partnership profits and losses generally, see Practice Note: Taxation of general partnerships—Partnership tax computations and partnership returns.

Allocating losses between partners

Once the partnership's tax adjusted profit or loss has been calculated, this is allocated between the partners in accordance with the partnership's profit and loss sharing ratios.

From a commercial perspective, partners are free to agree any arrangement for sharing profits and losses—there is no requirement