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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Partnerships - loss relief restrictions: non-active partners in early tax years: example

On 1 April 2004 Z becomes a partner in a general partnership on a non-active basis, introducing capital of £10,000.

Z’s share of the partnership profits and losses is:

Year ended 31 March 2009 Loss (£15,000)
   
Year ended 31 March 2010 Loss (£10,000)
Year ended 31 March 2011 Profit £10,000
Year ended 31 March 2012 Profit £20,000
Year ended 31 March 2013 Loss (£75,000)

Z is entitled to sideways relief for losses as follows:

2008/2009 £10,000 (a) (unrelieved loss £5,000)
     
2009/2010 Nil (b) (unrelieved loss £10,000 + £5,000 = £15,000)
2010/2011 N/A (£10,000 of unrelieved losses brought forward set against trading profits)
2011/2012 N/A (£5,000 of unrelieved losses brought forward set against trading profits)
2012/2013 £25,000 (c)  

(a) Sideways loss relief restricted to capital contribution at 31 March 2009 (£10,000). The balance of the loss of £5,000 (£15,000 - £10,000) is carried forward.

(b) No sideways loss relief of £5,000 is available as capital contribution at 31 March 2010 (£10,000) does not exceed total sideways relief given for earlier years.

(c) No restriction on sideways loss relief by reference to capital contributions as 2012/13 is not an early year of trading, but £25,000 annual limit applies. The £50,000 balance of the loss can only be carried forward to set against profits of the same trade for later years. Losses restricted by the annual limit are not unrelieved losses available for sideways loss relief in later years, see BIM82650.