ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is adverse to some taxpayers and favourable to others in principle and in practice. But the numbers affected and the amounts involved are likely to be small.
Change 11: Carry-forward of trading losses: business transferred to a company: deletion of rule specifying order in which loss is to be set off against sources of income: section 86
This change removes the rule in section 386(2) of ICTA.
Section 386 of ICTA, which is rewritten in section 86, is concerned with the case where an individual has accumulated losses from a trade which is incorporated, and where the individual later receives income from the company concerned. It makes provision for such losses to be set against such income.
Section 386(2) of ICTA specifies that losses should be set off against the income in a particular order, namely income that is taxed by assessment and then other income.
The rule dates from section 29 of FA 1927, at which time earned and unearned income were taxed at different rates. It does not fit with self-assessment and has no practical effect, since HMRC practice is to allow the taxpayer to make the set-off in the order that provides maximum benefit.