CH10 - Individual Trading Losses v2 Flashcards
Current or Previous Year (Total Income)
offset their trading losses against their total income of either the current tax year or the previous tax year, both and in any order.
The relief cannot be restricted to preserve the Personal Allowance.
This means that using the loss relief might reduce taxable income below the level at which the Personal Allowance is fully utilised.
The offset is indeed restricted to the lower of £50,000 or 25% of the individual’s adjusted total income for the year for the offset against non-trade income. But not for the loss being off-set against the trade profits.
Opening Years Relief (First Four Tax years) Prior 3 years - Total Income
Losses in the first four tax years of trading can be carried back to the three preceding tax years on a FIFO basis.
The relief applies to total income, but the offset cannot preserve the Personal Allowance so is it an all of nothing claim.
The maximum deduction is based on the total income calculation, which includes all income, not just trading income.
It does not ignore savings or dividend income; these are included in total income.
Terminal Loss Relief
In the year of cessation, terminal loss relief allows losses to be carried back to the last three years of trading on a LIFO basis (Last In, First Out).
The relief applies to profits of the same trade.
Future Years (C/F)
o Losses carried forward can only be used against future trading profits from the same trade.
o These losses are used on a FIFO basis (First In, First Out).
o There is no loss restriction in future years, meaning you can fully utilise these losses against future profits.
B/F Losses
o Losses brought forward are dealt with first and can only be offset against future profits from the same trade.
o They cannot be carried back to previous years once they are carried forward.
Adjusted total Income
Total Income
Less: Gross PPC
=Adjusted Total Income
