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HMRC internal manual

Business Income Manual

Partnerships - loss relief restrictions: limited partners

S103A, S104, S105, S113A, S114 Income Tax Act 2007; SI 2005 No 2017

A limited partner for the purposes of restriction of loss reliefs is an individual who carries on a trade:

  • as a limited partner within the meaning of the Limited Partnership Act 1907;
  • as a limited partner of a limited partnership formed under the law of an overseas country;
  • as a partner who is in substance in the same position as a limited partner:

    • not entitled to take part in the management of the business, and
    • protected from bearing unlimited liability for the debts and obligations of the partnership.

Limit of relief

A comparison has to be made between:

  • the total amount of sideways loss relief (see BIM82601) in respect of losses from the same trade already allowed together with the relief sought for the year less the total amount of recovered relief (see BIM82610), and
  • the individual’s contribution to the partnership at the end of the basis period for the loss-making tax year.

The total sideways relief must never exceed the contribution to the partnership.

For losses sustained by limited partners on or after 2 March 2007 the £25,000 annual limit for sideways loss relief applies after this restriction has been applied - see BIM82611.

A loss arising from relevant tax avoidance arrangements entered into on or after 21 October 2009 is subject to the general restriction of relief for tax-generated losses; see BIM85761 and BIM85762.

Limited partner’s capital contribution

A limited partner’s capital contribution to the partnership at any given time for the purpose of loss relief restrictions is:

  • the amount that the partner has contributed as capital (including any of the partner’s share of the profits of the partnership so far as that share has been added to the partnership’s capital),


  • any ‘withdrawn capital’ (see below),


  • any contribution where the financial cost of making the contribution may not be borne by the partner personally,


  • the amount of any profits of the trade to which the partner is entitled but which has not been added to the partnership’s capital or which they have not received in money or money’s worth.

The profits of the trade for this purpose means profits as computed in the accounts, not as adjusted for tax purposes.

Purpose test

Capital contributions paid by limited partners on or after 2 March 2007 do not count if the main purpose, or one of the main purposes, for contributing them to the partnership is for the partner to reduce their tax liability through sideways loss relief.

The purpose test does not apply to any loss derived solely from qualifying film expenditure. See BIM82610.

Withdrawn capital

‘Withdrawn capital’ in calculating a limited partner’s capital contribution at any given time is:

  • any amount drawn out or received back, directly or indirectly, by that time, other than amounts chargeable to Income Tax as a result of being drawn out or received back;
  • any amount that the partner is entitled to withdraw if they wish while they are a limited partner;
  • any amount that the partner may be entitled to require another person to reimburse to them.

Financial cost of contributions not borne by partner

Suggest keeping the SI reference and the date Amounts are excluded from being capital contributions in two further situations:

  • where the partner takes out a loan to finance a contribution, and the loan is on limited or non-recourse terms (for the meaning of `non-recourse terms’ see BIM82655), or the cost of repaying the loan is or may be borne, assumed or released by someone else, or the partner’s loan repayment costs over any period of five years are less than they would be on arm’s length commercial terms.
  • where arrangements are made so that the financial cost to the partner of making the contribution can be reimbursed by someone else.

Further guidance on amounts excluded in these situations is at BIM82655 onwards.

Partners’ guarantees

Guarantees given by partners in respect of money borrowed by the partnership do not count as the contribution of capital.

Partners’ loans to the partnership

Loans made by partners to the partnership do not count as the contribution of capital.