Commentary

B5.175 Restrictions of relief for losses in farming and market gardening

Business tax
Business tax | Commentary

B5.175 Restrictions of relief for losses in farming and market gardening

Business tax | Commentary

Farming, market gardening and forestry: losses

B5.175 Restrictions of relief for losses in farming and market gardening

Relief for farming losses may be restricted:

  1.  

    •     under the general restriction for income tax trades not carried on on a commercial basis and with a view to realisation of profits in the trade1 or

  2.  

    •     under a specific restriction for farming and market gardening where losses were incurred in each of the five previous successive years2

The terms 'farming' and 'market gardening' have the meanings described in B5.101 except that they are extended to activities outside the UK3.

Restriction for non-commercial trading generally

For detailed commentary on this restriction, which does not apply for corporation tax purposes, see B8.202. Although the restriction is widely drawn to cover any non-commercial trading or vocational activity, it was primarily aimed at so-called 'hobby farmers'. The test for restricting relief under these provisions is a subjective one (it is concerned with what was in the mind of the farmer), but as in practice, this proved difficult to apply in the case of farming activities, a further provision containing a more objective test applies specifically to farming and market gardening (see below).

Restriction after five years of losses

For income tax purposes, losses in respect of farming or market gardening trading are excluded from relief against general income4 where such losses were sustained in each of the previous five successive tax years5. The test is therefore an objective one; when it is satisfied, there is an inference (but not

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