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 17: Trading losses: restrictions: withdrawal of capital ignored where amounts charged to tax as profits of a trade: sections 105 and 108
This change brings the position of limited partners and active members of limited liability partnerships (LLPs) into line with that of non-active partners in relation to the treatment of amounts of capital withdrawn in the context of determining an individual’s contribution to the firm.
It is possible that amounts of capital withdrawn may be regarded for tax purposes as profits charged to tax as profits of a trade. In these circumstances it is inequitable to restrict loss relief by reference to those amounts. Indeed section 118ZG(5) of ICTA (as inserted by section 124 of FA 2004) operates in relation to non-active partners to ensure that such amounts are not taken into account to restrict loss relief.
This change extends that rule to limited partners and members of LLPs generally.