individual losses Flashcards
what are the three types of individual losses
trading loss
property loss
capital loss
how can capital loss be relieved by an individual
-first set off against current year capital gains and then against future capital gains
-no partial claim in current yr, in c/f partial claim is allowed (this option not available for companies)
-no carry back
how are capital losses relieved in year of death
-first set off against current year capital gains and then setoff against last 3 yrs capital gains
-no partial claim in current yr, in c/b partial claim is allowed
property losses for individuals
Will hit property income only
first set off against current year property income and then setoff against future property income.
-no partial claim in current yr or in future
trading loss for individuals - relief options
1- set off against current year total income
2- set off against last 12 months total income
3- set off against future TRADING income (in companies this was total income)
sequence not necessary
no partial claim allowed in any option
trading loss amount restriction
trading loss against total income is restricted to:
trading income + 50,000 pounds
the 50,000 cap is increased to 25% of total income if a person’s income exceeds 200,000 pounds
this is to prevent people from using losses for tax avoidance and creating extra loss just to avoid tax.
can trading loss be offset against capital gains?
yes after it has offset total income of that year
-partial claim not allowed
-no 50,000 restriction
-marzi, not mandatory
we can hit current year or carry back 12 months, gain tak janay ka raasta khulega when u have offset the total income of THAT year this k gain pe aap jana chahte hain
eg. we have a choice to hit current yr total income then go for gains
however, income tax rates are higher than CGT, so use loss in income tax return first
terminal trading loss in individuals
last 12 months trading loss
relief against:
-current year trading income
-last 36 months trading income on LIFO basis
(in companies this used to offset total income)
partial claim not allowed
since this is only hitting trading income, one might think this is not a good option. trading income will be less in last3 yrs and loss will not be utilized fully. loss will be wasted.
so tax dept allows individuals to claim NORMAL loss relief rather than terminal loss relief (we can go back to 12 months only then, not 36. but we will hit total income + can go to gains as well)
overlapping profit
old concept
in old yrs when accounting yr and tx year was not aligned, alignment karwane k lye, overlapping profit were created and double taxation was done
from finance act 2023, these rules are finish, so overlapping profit can not be created
now if any overlapping profit exists, then we will add in terminal loss,
it was double tax so we will add in loss to neutralize it
what happens to terminal trading loss if an individual is ceasing the unincorporated business and turning it into a company
normally it gets wasted but in this situation, the wasted loss can be used against future incomes that the individual will get from the company in form of salary and dividends. this relief is only available if that individual owns at least 80% shares in that company
what relief is available if an individual has just started trading (opening year trading loss)
-trading losses in first 4 years of trade are called opening year trading losses
following reliefs are available:
-set off against last 36 months TOTAL INCOME on FIFO basis
-set off against current year total income
-then c/f against future trading income
-loss relief restriction of 50k applies when setting off against total income
-partial claim not allowed
-claim against capital gains is not available if using this option
-we can use normal loss relief option (12 months carryback, gains can be hit) rather than this option (36months carryback, no gains hit)
