Income tax losses ― overview

Produced by Tolley

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Income tax losses ― overview
  • Summary of guidance notes ― relief for income tax losses
  • Temporary extension of relief for trading losses incurred in 2020/21 and 2021/22 tax years
  • Caps on relief for income tax losses
  • Links to articles about income tax loss relief

Income tax losses ― overview

Income tax losses can arise due to a number of reasons, but not all losses can be relieved against total income and some losses can only be set against certain types of component income. The table below is a summary of the main reliefs for income tax losses.

Summary of guidance notes ― relief for income tax losses

Type of lossSummary of the potential set off of income losses (other than trading losses)Guidance noteLegislative reference
Current year trading lossesFor established businesses, current year trading losses may be set against income or gains in current or preceding years, and against income in future years subject to particular conditions. As there is a choice of loss relief there are planning aspects to consider to ensure the best outcome for the taxpayerRelief for current year trading losses ― planning considerations;
Sole trader losses ― established trades
ITA 2007, ss 64, 71, 83;
TCGA 1992, ss 261B, 261C
Trading losses in opening and closing yearsLosses in the first four years of trading, losses on incorporation and losses on cessation are all subject to different set off rules, which are discussed in detail in further guidance notes and summarised in a tableSole trader loss relief ― opening years;
Sole trader losses on cessation;
Table ― trading loss

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