Income Tax Act 2007

Non-active members of LLPs or other partnerships (apart from limited partnerships) U.K.

110 Restriction on reliefs for non-active partners in early tax years U.K.

(1) This section applies if—

(a) an individual carries on a trade (“the relevant trade”) as a non-active partner in a firm during an early tax year F1 ..., and

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

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

(3) 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.

(4) 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 firm as at the end of the basis period for the relevant tax year (see section 111).

(5) “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 limited partner or 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.

(6) “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.

(7) If the firm 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 (5) in relation to each other trade as well as the relevant trade and then add the results together, and

(b) apply subsection (6) as if the reference to the relevant trade were a reference to the relevant trade or any of the other trades.

(8) In this section “trade” does not include a trade which consists of the underwriting business of a member of Lloyd's (within the meaning of section 184 of FA 1993).

Textual Amendments

F1 Words in s. 110(1)(a) repealed (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 10(c), 21, Sch. 27 Pt. 2(1)

111 Meaning of “contribution to the firm” U.K.

(1) For the purposes of section 110 the individual's contribution to the firm at any time (“the relevant time”) is the sum of amount A and amount B and, if there is a winding up of the firm, amount C.

(2) Amount A is the amount which the individual has contributed to the firm as capital less so much of that amount (if any) as is within subsection (4).

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

(4) 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 carrying on a trade as a partner in the firm, or

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

(5) In subsection (4) 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.

(6) Amount B is the amount of the individual's total share of profits within subsection (7) except so far as—

(a) that share has been added to the firm's capital, or

(b) the individual has received that share in money or money's worth.

(7) Profits are within this subsection if they are from the relevant trade.

(8) In determining the amount of the individual's total share of profits within subsection (7) ignore the individual's share of any losses from the relevant trade which would (apart from this subsection) reduce that amount.

(9) In subsections (3), (7) and (8) any reference to profits or losses are to profits or losses calculated in accordance with generally accepted accounting practice (before any adjustment required or authorised by law in calculating profits or losses for income tax purposes).

(10) If the firm is carrying on, or has carried on, other trades apart from the relevant trade, subsections (7) and (8) have effect as if references to the relevant trade were references to the relevant trade or any of the other trades.

Subsection (8) of section 110 applies for the purposes of this subsection as it applies for the purposes of that section.

(11) Amount C is the amount which the individual has contributed to the assets of the firm on its winding up so far as it is not included in amount A or B.

(12) This section needs to be read with [F2 section 113A and any regulations made under section 114 (exclusion of amounts] in calculating the individual's contribution to the firm for the purposes of section 110).

Textual Amendments

F2 Words in s. 111(12) substituted (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 11(c), 21

112 [F3 Meaning of “early tax year”] U.K.

F4 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F4 (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F4 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F4 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F4 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) In this Chapter “early tax year” means, in relation to an individual carrying on a trade—

(a) the tax year in which the individual first started to carry on the trade, or

(b) one of the next 3 tax years.

Textual Amendments

F3 S. 112 heading substituted (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 13(b), 21

F4 S. 112(1)-(5) repealed (retrospective to 6.4.2007) by Finance Act 2007 (c. 11), Sch. 4 paras. 13(a), 21, Sch. 27 Pt. 2(1)

113 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 in relation to a trade if—

(a) at a time during a tax year (“the current tax year”) the individual carries on the trade as a partner in a firm or makes a contribution to the assets of a firm within subsection (2) on the firm's winding up, and

(b) as a result of section 110, 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.

(2) A firm is within this subsection if the individual has carried on the trade as a partner in the firm.

(3) So far as they are not excluded by subsection (4), the amounts of loss mentioned in subsection (1)(b) are treated as having been made in the current tax year.

(4) 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.

(5) For the purpose of applying sections 107 and 110 in relation to the amounts of loss treated by this section as having been made in the current tax year—

(a) the individual is treated as having carried on the trade during the current tax year as a non-active partner in the firm, and

(b) the current tax year is treated as if it were an early tax year in relation to the individual's carrying on of the trade.

(6) Subsection (7) applies if the individual—

(a) made a contribution in the current tax year to the assets of the firm on its winding up, but

(b) did not carry on the trade as a partner in the firm in the current tax year.

(7) If this subsection applies—

(a) the restrictions under sections 66 and 74(1) do not apply in relation to the amounts of loss treated by this section as having been made in the current tax year, and

(b) in the application of this Chapter in relation to those amounts of loss, section 110(4) has effect as if the words “the basis period for” were omitted.

(8) In subsection (1)(b) the reference to amounts of loss does not include amounts of loss which have been treated by section 109 as having been made in any previous tax year.