Commentary

B7.522 Restrictions on utilisation of partnership trade losses

Business tax
Business tax | Commentary

B7.522 Restrictions on utilisation of partnership trade losses

Business tax | Commentary

B7.522 Restrictions on utilisation of partnership trade losses

Of key importance in quantifying losses available to partners is establishing whether a 'partnership' loss can actually be utilised by the partners concerned. This is because, once a partnership loss has been allocated to a partner, there are several provisions that operate to restrict 'sideways' loss relief.

The restrictions apply generally to corporate and non-corporate limited partners and members of LLPs. They also apply to individual non-active partners.

Sideways loss relief is, essentially, loss relief against other income of the partner. More specifically it is defined as follows:

  1.  

    •     corporate tax partners — relief against total available profits of the same accounting period, preceding accounting period or (for accounting periods commencing on or after 1 April 2017) later accounting period and group relief1

  2.  

    •     non-corporate tax partners — relief against general income and gains in the current year or preceding year (or preceding three years for trading losses incurred in the first four years of trading)2

The legislation restricts relief against income from other sources. It does not restrict relief against income derived from the same trade, whether of earlier or later years.

Loss restriction provisions—overview

The loss restriction rules apply primarily to limited partners, members of LLPs and non-active partners. The exact scope and operation of the restrictions are slightly different depending upon whether the partner is a corporate or non-corporate partner but the broad intention and thrust of the legislation is the same. Any differences between the two are mentioned as necessary in

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