Chapter 13 - Losses - Continuous Trades Flashcards
Intro
When a trader makes a loss, the taxable profits will be nil. The trader may then choose how the loss should e relieved by making an appropriate loss relief claim
Current Year Loss Relief - S.64
Under Section 64, losses may be set against net income: total income less any deductible payments, but before personal allowances. If the loss is big enough, it could waste the taxpayer’s PA
S.64 Cont.
The loss can be allocated to, and set against, the net income of the tax year of loss and/or the preceding tax year. The two claims are independent. A S.64 claim is not mandatory. No partial claims are permitted. Must be submitted by the 31 Jan following the loss
Loss Planning
Look at marginal rates first, set against the highest marginal rate. Then, look at loss of PA, then consider timing
Extension to Capital Gains (S.71)
When the full use of a s.64 loss isn’t available, you can use the balance as an allowable loss against capital gains under section 71
Section 71 Cont.
Used before any capital losses b/f. S.64 must have been made before extending to cap gains. The relief is lower of the remaining s.64 claim and the relevant maximum (net gains in the year less cap losses b/f)
Carry Forward Losses (S.83)
Losses can be carried forward and set against future profits from the same trade under Section 83
Loss Relief Claims
S.64 (and by extension S.71) claims to be made by the 31 Jan following the loss. S.83 is automatic but a claim establishing the c/f amount must be made within 4 years of the end of the tax year (5 April)
Effect on Tax Payments
Current year claims reduces net income and therefore reduces tax due, carry back claims creates a tax refund
Restriction of Loss Relief
Greater of £50,000 or 25% of the individual’s adjusted total income for the year (total income less gross personal pension payments)
Other Restrictions
No relief loss is available unless the trade is commercial
