BIM85766 - restriction of relief: non-active traders - annual limit

S74A Income Tax Act 2007 (ITA 2007)

Sole trader loss relief restrictions apply for losses made on or after 12 March 2008 in a trade carried on by an individual in a non-active capacity. There is an annual limit of £25,000 on the amount of losses for which sideways loss relief can be claimed.

If the trading losses made by a non-active individual are derived from tax avoidance arrangements made in the period 12 March 2008 - 20 October 2009 then no sideways loss relief is due at all (meaning the £25,000 annual limit does not apply) - see BIM85769.

The annual limit:

  1. is applied after the other loss restrictions:
  1. is reduced by the amount of sideways loss relief given to an individual for losses made as a non-active or limited partner for the tax year, see BIM82640-BIM82650.

  2. does not aply to, and hence does not restrict relief for, trading losses derived from:

  • qualifying film expenditure, see BIM85768
  • carrying on a Lloyds underwriting business.

The restriction only applies to relief against income from other sources. It does not restrict relief against income derived from the same trade, whether of earlier or later years.

Where losses are claimed against total income of another tax year, relief is given first (and without restriction) against income from the same trade. The balance of the loss, subject to the £25,000 cap, is relieved against other income.

Where the basis period for the tax year to which the loss relates straddles 12 March 2008 (which may be the case for tax year 2007/08 and/or 2008/09), the £25,000 annual limit does not apply to the ‘pre-announcement loss’ for that period.

Guidance on calculating the ‘pre-announcement loss’ for basis periods straddling 12 March 2008 is at BIM85767.