Personal Tax

Relief for current year trading losses ― planning considerations

Produced by Tolley
  • 25 Feb 2022 15:14

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

  • Relief for current year trading losses ― planning considerations
  • Things to consider when relieving losses
  • Cap on unlimited income tax reliefs
  • Accelerate the relief

Relief for current year trading losses ― planning considerations

In summary, for continuing trades, current year trading losses may be relieved against the following:

  1. total income of the year of loss or the preceding year, or

  2. current year or preceding year capital gains, to the extent that losses cannot be relieved against current or prior year total income, or

  3. future profits arising from the same trade

ITA 2007, ss 83, 64; TCGA 1992, s 261B

This is discussed in detail in the Sole trader losses ― established trades guidance note, which also includes commentary about the temporary extension for the use of trading losses incurred in the 2020/21 and 2021/22 tax years. Relief for trading losses in opening and closing years is discussed in the Sole trader loss relief ― opening years and Sole trader losses on cessation guidance notes.

This guidance note focuses on the planning aspects that need to be considered to ensure the best outcome for the taxpayer.

Things to consider when relieving losses

The main factors that should be taken into account in loss relief planning are as follows:

  1. marginal rate of tax ― losses should be offset against income taxed at higher marginal rates of tax in priority

  2. personal allowances and annual exempt amount ― where possible,

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