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HMRC internal manual

Business Income Manual

Business Income Manual: Computing the amount to assess: Mixed Membership Partnerships: Excess loss allocation: When do the restrictions apply?

ITA07/S116A (3) and S127C (3)

The excess loss allocation restrictions apply when:

  • an individual makes a trading or property business loss as a partner in a firm;
  • which arises, wholly or partly, as a consequence or in connection with tax avoidance arrangements to which the individual is a party, a main purpose of which is to secure that losses are allocated or arise to the individual, rather than a non-individual, see BIM82770; and
  • with a view to the individual obtaining relief for the loss.


The fact that the non-individual is not a partner in the firm or is unknown or does not exist at the time does not prevent the restriction applying.

Where there is no non-individual member and no plans for there to be in future, there may still be a relevant tax avoidance arrangement if the business giving rise to the loss is sold or transferred by the partnership to a non-individual who is not in partnership if that transfer is part of the arrangement.

A relevant tax avoidance arrangement can be any agreement, understanding or any form of arrangement for the loss to be allocated to one or more individuals rather than a non-individual.

The allocation of the losses does not have to be the main purpose of the arrangements, only one of the main purposes.


*Example *

For the purposes of the loss rules an overseas individual remains an individual.

EXP LLP expands its overseas operations. For regulatory reasons, its operations it sets up a local partnership the EXP partnership. A, B and C are members of both EXP LLP and the EXP partnership.

*In the first year, EXP partnership makes a loss which is allocated to A, B and C, local members D, E and F receiving neither a profit nor loss. *

The excess loss provisions do not apply as an overseas individual is still an individual.