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HMRC internal manual

Business Income Manual

Partnerships - loss relief restrictions: non-active partners: unrelieved amounts

S113 Income Tax Act 2007

A non-active general partner who has had their sideways loss relief restricted to their capital contribution in an earlier tax year, may obtain relief for ‘unrelieved losses’ if they make a further capital contribution.

The rules are the same as for the carry forward of unrelieved losses by (active and non-active) LLP members, see BIM82635.

There are no comparable provisions relating to unrelieved losses of limited partners for which relief has been restricted.

Calculating unrelieved losses

Unrelieved losses in any tax year are:

  • the total of any losses for previous years which the non-active general partner has not been able to set off against their general income or gains because of a restriction made by reference to the partner’s capital contributions,


  • any amounts for which relief has been given in that or any earlier year under any provision of the Income Tax Acts (or would have been given if a claim had been made).

Losses restricted by the £25,000 annual limit are not unrelieved losses for this purpose and so can only be carried forwards and set against future profits from the same trade. Guidance on the annual limit is at BIM82611.

Giving relief for unrelieved losses

The non-active partner is entitled to relief for the unrelieved loss in the later tax year in which the further capital contribution is made (provided that at the time the further contribution is made they are still carrying on the trade in partnership) as if:

  • any loss made by the partner in that later tax year was increased by an amount equal to the unrelieved loss, or
  • if no loss is made, a loss of that amount were made.

The amount of the additional relief given in respect of the unrelieved loss for the later tax year should not exceed the further capital contribution made by the non-active partner in that year. If there still remains a balance of unrelieved loss, further relief may be due for a later tax year if a further capital contribution is made in that later year. There is an example at BIM82635 illustrating how the rules for unrelieved losses work when further capital contributions are made.

The £25,000 annual limit for sideways loss relief applies to an unrelieved loss treated as a loss sustained in a later tax year in the same way as it would apply to an actual loss sustained by the partner in that later tax year.