Commentary on Sections Overview Overview Section 110: Restriction on reliefs for non-active partners in early tax years
364.This section restricts the use of trade losses made by an individual carrying on a trade as “a non-active partner” in an “early tax year”. It is based on sections 118ZE and 118ZF of ICTA.
365.A non-active partner is an individual who does not devote a significant amount of time to the trade and is not a limited partner. See section 112.
366.Sideways relief or capital gains relief for the trade loss, combined with other relevant relief, must not exceed the individual’s “contribution to the firm”.
367.The restriction applies only to losses made in the first tax year in which the individual carries on the trade or in any of the next three tax years. See section 112(6).
368.The interaction between section 72 of FA 1991 and section 118ZE of ICTA is made explicit. See Change 13 in Annex 1.
369.The individual’s contribution to the firm is measured at the end of the basis period for the relevant tax year, rather than at the end of the tax year as in the source legislation. See Change 15 in Annex 1.
370.There is a change from “contribution to the trade” in the source legislation to “contribution to the firm”. See the overview commentary on this Chapter and Change 16 in Annex 1.
371.Subsection (8) disapplies the rules in the case of losses from a trade of underwriting at Lloyd’s. Lloyd’s underwriters are subject to a specific tax regime which reflects the nature of the business and the partners’ liabilities for the underwriting losses.