Business Taxation - Tax reliefs (10)

Question 1

What trading profit loss reliefs are there?

Answer 1

Start up loss
Year of loss: First 4 Years of Trading
Set against: Total income in previous 3 years (earliest years first)
Requirements: Claim by 31 January (in tax year following loss).

Carry-Across & Carry-Back
Year of loss: Current Year
Set against: Total income in current year or previous year.
Requirements: Claim by 31 January.
Exhaust one before using other.

Capital Gains Set-Off
Year of loss: Current Year
Set against: Capital gains in current year.
Requirements: Claim by 31 January.
Must have set against total income first.

Carry Forward
Year of loss: Current Year
Set against: Trading profit (up to personal allowance) indefinitely.
Requirements: Claim within 4 years of tax year of loss.

Terminal Carry-Back
Year of loss: Final 12 months of Trade
Set against: Total income in current and 3 prior years (descending).
Requirements: Claim within 4 years of tax year of loss.

Incorporation Carry-Forward
Year of loss: Losses on incorporation.
Set against: Income of taxpayer paid by newly incorporated company (salary/dividends) until absorbed.
Requirements: Claim within 4 years of tax year of loss.More than 80% of sale must have been funded by shares.

Question 2

What kind of capital gains reliefs are there?

Answer 2

Business Asset Disposal Relief
Year: Assets owned 2 years immediately prior to disposal.
Effect: Charged at 10% only.
Requirements: Either -
1. Sale of unincorporated business;
2. Sale of business assets on cessation;
3. Sale of shares held in a trading company, in which 5% shares were owned, in which disposer is an employee; and was entitled to 5% proceeds on winding up.

Rollover Relief
Year: Gain rolled into qualifying assets purchased 1 year prior or 3 years after disposal.
Effect: Gain is offset in new asset (making the new asset have a larger gain on disposal)
Requirements: Must be a fixed business asset.

Hold-Over Relief
Year: Gain made on an asset that is gifted is rolled over into the recipient’s gift.
Effect: Gain is offset onto the recipient (they pay more on disposal).
Requirements: Both parties must apply. Must be assets of trade, unlisted shares, or shares in which the donor owned 5% of voting rights in company.

Incorporation Relief
Year: Gain on the sale or incorporation of a business is rolled over into shares received in transaction.
Effect: Gain is offset into shares (making the shares have a larger gain on disposal)
Requirements: Applies automatically.

Spousal rollover
Year: Assets can be given to spouses with there being a tax on giftor.
Effect: Recipient spouse pays for gain of both parties, benefitting from higher annual exemption or lower rate.

Private Residence Relief
Year: Gains on primary residences are exempt.
Effect: Gains above 0.5 hectares of land are taxed.
Requirements: Must be the taxpayer’s main dwelling during period of ownership.

Question 3

What reliefs are available for corporation tax?

Answer 3

Company Group Income
Year of loss: Any
Effect: Unabsorbed income losses can be offset against gains of other groups in company.
Requirements: Qualifying Group: Company (A) is 75% subsidiary/shareholder of Company (B), or both 75% subsidiaries of Company (C).

Company Group Capital
Year of loss: Any
Effect: Group can roll over chargeable assets into another group for tax benefit.
Requirements: Qualifying Group: Principal Company, its direct 75% subsidiaries, and direct 75% subsidiaries of those subsidiaries (effective 51% shareholding principal).

Rollover relief capital
Year of loss: Gain rolled into qualifying assets purchased 1 year prior or 3 years after disposal.
Effect: Gain is offset in new asset (making the new asset have a larger gain on disposal)
Requirements: Must be a fixed business asset (not wasting assets, goodwill, IP, or shares).

Carry-Across Relief
Year of loss: Current year income loss.
Effect: Set fully against total profits in current year, and then previous year.

Carry back relief
Year of loss: Current year income loss.
Effect: Set fully against total profits in previous year, and then current year.

Terminal Carry-Back
Year of loss: Final year of trading trading loss.
Effect: Set against the current year and then 3 previous years working backwards.

Carry-Forward Relief
Year of loss: Any year.
Effect: Carried forward indefinitely against total profits until absorbed.
Requirements: Maximum £5,000,000 deduction. 50% of total profits must remain after deduction.