Partnership losses
Partnership losses

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

  • Partnership losses
  • Computation of partnership losses
  • Allocating losses between partners
  • Profits for some partners, losses for others
  • Mixed member partnerships
  • Using partnership losses
  • Individual partners
  • Sideways relief for income tax
  • Restrictions on sideways relief
  • Capital gains relief
  • More...

FORTHCOMING CHANGE relating to carry-back of losses: At Spring Budget 2021, the government announced a temporary extension of the period over which both incorporated and unincorporated businesses can carry-back trading losses from one year to three years, with a cap applying to the two extra years. For more, see News Analysis: Spring Budget 2021—Tax analysis—Extended loss carry-back for businesses.

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 for businesses.

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

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