Income Tax Act 2007

Members of LLPs U.K.

107 Restriction on reliefs for members of LLPs U.K.

(1) This section applies if—

(a) an individual carries on a trade (“the relevant trade”) as a member of an LLP at a time in a tax year, and

(b) the individual makes a loss in the relevant trade in the tax year (“the relevant tax year”).

(2) But if the relevant tax year is an early tax year during which the individual carries on the relevant trade as a non-active partner F1 ...—

(a) this section does not apply, and

(b) section 110 applies instead.

(3) There is a restriction on the amount of relief within subsection (4) which may be given to the individual for the loss.

(4) The relief within this subsection is—

(a) sideways relief against the individual's income apart from profits of the relevant trade, and

(b) capital gains relief.

(5) The restriction is that—

(a) the sum of the amount of the relief given and the total amount of all other relevant relief given, less

(b) the total amount of recovered relief,

must not exceed the individual's contribution to the LLP as at the end of F2 ... the relevant tax year (see section 108).

(6) “Relevant relief” means sideways relief or capital gains relief given to the individual for—

(a) a loss made in the relevant trade in a tax year at a time during which the individual carries on that trade as a member of an LLP, or

(b) a loss made in the relevant trade in an early tax year during which the individual carries on that trade as a non-active partner.

(7) “The total amount of recovered relief” means the total amount of income treated as received by the individual under section 792 (recovery of excess relief) as a result of the application of that section in relation to claims for relief for losses made by the individual in the relevant trade.

(8) If the LLP is carrying on, or has carried on, other trades apart from the relevant trade, for the purpose of determining the total amount of all other relevant relief and the total amount of recovered relief—

(a) apply subsection (6) in relation to each other trade as well as the relevant trade and then add the results together, and

(b) apply subsection (7) as if the reference to the relevant trade were a reference to the relevant trade or any of the other trades.

Textual Amendments

F1 Words in s. 107(2) repealed (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 10(b), 21, Sch. 27 Pt. 2(1)

F2 Words in s. 107(5) omitted (6.4.2024 for the tax year 2024-25 and subsequent tax years) by virtue of Finance Act 2022 (c. 3), Sch. 1 paras. 51, 61(1)

108 Meaning of “contribution to the LLP” U.K.

(1) For the purposes of section 107 the individual's contribution to the LLP at any time (“the relevant time”) is the sum of amounts A and B.

(2) Amount A is the amount which the individual has contributed to the LLP as capital less so much of that amount (if any) as is within subsection (5).

(3) In particular, the individual's share of any profits of the LLP is to be included in the amount which the individual has contributed to the LLP as capital so far as that share has been added to the LLP's capital.

(4) In subsection (3) the reference to profits is to profits calculated in accordance with generally accepted accounting practice (before any adjustment required or authorised by law in calculating profits for income tax purposes).

(5) An amount of capital is within this subsection if it is an amount which—

(a) the individual has previously drawn out or received back,

(b) the individual draws out or receives back during the period of 5 years beginning with the relevant time,

(c) the individual is or may be entitled to draw out or receive back at any time when the individual is a member of the LLP, or

(d) the individual is or may be entitled to require another person to reimburse to the individual.

(6) In subsection (5) any reference to drawing out or receiving back an amount is to doing so directly or indirectly but does not include drawing out or receiving back an amount which, because of its being drawn out or received back, is chargeable to income tax as profits of a trade.

(7) Amount B is the amount of the individual's liability on a winding up of the LLP so far as that amount is not included in amount A.

(8) For the purposes of subsection (7) the amount of the individual's liability on a winding up of the LLP is the amount which—

(a) the individual is liable to contribute to the assets of the LLP in the event of its being wound up, and

(b) the individual remains liable to contribute for the period of at least 5 years beginning with the relevant time (or until the LLP is wound up, if that happens before the end of that period).

(9) This section needs to be read with [F3 section 113A and any regulations made under section 114 (exclusion of amounts] in calculating the individual's contribution to the LLP for the purposes of section 107).

Textual Amendments

F3 Words in s. 108(9) substituted (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 11(b), 21

109 Unrelieved losses brought forward U.K.

(1) This section applies for the purpose of determining an individual's entitlement to sideways relief and capital gains relief if—

(a) the individual carries on a trade as a member of an LLP at a time during a tax year (“the current tax year”), and

(b) as a result of section 107, sideways relief or capital gains relief has not been given to the individual for amounts of loss made in the trade in previous tax years as a member of the LLP.

(2) So far as they are not excluded by subsection (3), the amounts of loss mentioned in subsection (1)(b) are treated as having been made in the current tax year.

(3) An amount of loss is excluded so far as—

(a) as a result of this section, sideways relief or capital gains relief has been given to the individual for the amount for years prior to the current tax year or would have been so given had a claim been made, or

(b) other than as a result of this section, relief under the Income Tax Acts has been given to the individual for the amount for years prior to the current tax year or for the current tax year.