Closing Years Losses (s.89) terminal loss relief

Question 1

What loss relief is available when a trader ceases to trade? re: individuals

Answer 1

Terminal Loss Relief is available under s.89

Question 2

What does a s.89 claim allow a trader to do?

What is the loss set against?

Answer 2

This allows a loss to be deducted from trading profits in the tax year of cessation and to be carried back to the 3 preceding tax years on a LIFO basis (ie later years first)

Relief is only against trading income.

Question 3

What is the terminal loss period? How is the terminal loss calculated?

Answer 3

The terminal loss period is usually the final 12 months of trading. We calculate the terminal loss on a tax year basis.

Question 4

What happens in the preceding tax year if there is no loss but a profit instead? re: calculating the terminal loss

Answer 4

If there is no loss in the preceding tax year, e.g if the results for the period 1 July 2018 to 5 April 2019 give a profit, this profit can be ignored.

Question 5

When must a s.89 claim be made?

Answer 5

Claim must be made 4 years from the end of the tax year of cessation.

E.G. loss in tax year 19/20, claim made by 5 April 2024.

IN THAT ORDER
1. tax year of cessation 19/20
2. 4 years from tax year of cessation 20/21, 21/22, 22/23, 23/24
3. End of the tax year 5 April 2024

Question 6

Describe the s.89 terminal loss computation? illustration

Answer 6

LOSS OF FINAL TAX YEAR
6 April to cessation
Add: overlap profits b/f to loss

LOSS OF PRECEDING TAX YEAR
12 months before cessation to 5Apr
Equals Terminal Loss