Chapter 20 Partnership Losses Flashcards
20.1 Introduction
If the partnership makes a loss, once the loss has been allocated, each partner is then able to claim loss relief based on their own personal circumstances. There is no concept of a partnership loss – the loss belongs to the partners and loss relief claims are made individually. The following claims are possible:
• Section 64 ITA 2007 – loss set against net income of the year of loss and/or the preceding year
• Section 71 ITA 2007 – losses set against capital gains in year, after section 64 claim
• Section 83 – losses carried forward against future profits from the partnership
• Section 72 (new partners) – a loss in any of the first four tac years of trade is carried back against bet income of the three preceding years. Done on a FIFO basis, loss set against earlier years first
• A retiring partner could claim terminal trade loss relief under section 89 ITA 2007. Done on a FIFO basis, so later years would utilize the losses first.
20.4 Notional Losses
Profit allocations may crease a loss for a partner even when the partnership has made a profit. This can arise when partners have high salaries, the losses are known as notional losses. HMRC do not allow relief for these notional losses, consequently these losses must be allocated to the other partners who are showing a profit. The reallocation is based on the ratio of profit allocated to the other partners in the year.
20.5 Restriction on Loss relief for partners
There is a restriction on the number of reliefs that can be offset against net income in a period. The total amount of relief that can be used is the greater of:
• £50,000; or
• 25% of the individual’s adjusted total income for the year (net income less the amount of personal pension contributions)
