ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL The reliefs to take into account in deciding how much of a trading loss can be used against other income
For an individual who is a limited partner at some time during a tax year, section 117(1) of ICTA sets a limit on the amount of a trading loss that can be used under section 380 or 381 of ICTA against income (other than from the trade concerned). The limit for the tax year has regard to other relief given to the individual under section 380 of 381 for losses from the trade (see section 117(1) and the definition of “aggregate amount” in section 117(2)).
If relief for a trading loss cannot be fully given in a claim under section 380 of ICTA, part of the trading loss may be relieved by treating it as a capital loss under section 72 of FA 1991.
The definition of “aggregate amount” in section 117(2) of ICTA refers to relief given under section 380 of ICTA but it does not expressly mention relief given under section 72 of FA 1991 (which as noted in the previous paragraph is given for amounts that would have been relieved under a section 380 claim if sufficient income had been available).
Practice has been to treat the definition’s reference to amounts of relief given under section 380 of ICTA as encompassing relief given under section 72 of FA 1991.
Section 74 of FA 2005 seems to assume that this practice is correct (see, in particular, subsection (5) of that section).
Further, section 78 of FA 2005 amended the definition of “aggregate amount” so that the amount of any “reclaimed relief” is deducted as part of the process of arriving at the aggregate amount. Losses that have been claimed under section 72 of FA 1991 may contribute to the amount of any “reclaimed relief”.
Again, this seems to assume that the practice referred to above is correct. It would be anomalous to deduct an amount X, computed with reference to section 72 of FA 1991, from an amount Y, computed entirely independently of section 72 of FA 1991.
The same considerations apply in the case of limits on the use of trading losses involving members of limited liability partnerships (section 117 of ICTA as applied by section 118ZB of ICTA) or non-active partners (section 118ZE of ICTA).
The practice of treating the reference to section 380 of ICTA in the definition of “the aggregate amount” as extending to section 72 of FA 1991 has been made explicit in sections 104(5), 107(6), and 110(5) and in Schedule 2 Part 5 (reliefs for limited and non-active partners and for members of LLPs not to exceed contribution to the firm or LLP).