What are the loss relief options for individual members of a partnership? What restrictions apply? What is the definition of capital contribution?
This is a freeview 'At a glance' guide to loss relief for individual partners. Subscribers, see here for your detailed version.
- Individual members of a partnership or Limited Liability Partnership (LLP) are entitled to relief for the partnership’s trading losses.
- In general:
- Losses are allocated between the partners according to the loss-sharing ratio for the accounting period.
- If the initial allocation produces a mixture of notional profits and losses, there must be a reallocation of the actual partnership profit (or loss) between the profit-making (or loss-making) partners. HMRC provides an example of this in their Partnership Manual at PM163060.
- Each partner can choose how to relieve their losses independently of the other partners.
- The Loss reliefs available are the same as those for a sole trader, with certain additional restrictions.
- The restrictions that apply to sole traders also apply to individual partners. This includes Uncommercial trades and the cap on losses, which is the lower of £50,000 or 25% of Adjusted net income.
- For individual members of a partnership, additional restrictions apply to sideways loss relief claims if one or more of the following apply:
- The individual is non-active.
- The individual is a member of an LLP.
- The individual is a limited partner.
- There are also special rules relating to film partnerships.
- These additional restrictions apply ONLY to Sideways loss relief claims and claims to treat the trade loss as a Capital Gains Tax (CGT) loss.
- Sideways loss relief for these purposes means relief claimed for trading losses against the partner’s general income of the same or preceding year and any early-year loss relief claims.
- The restriction does not apply to claims to offset the loss against profits of the same trade or terminal loss relief claims.
Summary of the additional loss relief restrictions for partners
| Partner type: | Partner (active) in a LLP | Non-active partner in a general partnership | Non-active partner in a LLP | Limited partner |
| Which losses are restricted? |
Sideways loss relief CGT relief (treating trade loss as CGT loss) |
Sideways loss relief CGT relief (treating trade loss as CGT loss) |
Sideways loss relief CGT relief (treating trade loss as CGT loss) |
Sideways loss relief CGT relief (treating trade loss as CGT loss) |
| Restriction in early years** of trading |
Capped by capital contribution restriction* |
Restrict to the lower of: 1. £25,000 p.a. 2. Capital contribution restriction* |
Restrict to the lower of: 1. £25,000 p.a. 2. Capital contribution restriction* |
Restrict to the lower of 1. £25,000 p.a. 2. Capital contribution restriction* |
| Restriction after early years** of trading |
Capped at £25,000 p.a. Ignore capital contribution |
Restrict to the lower of
1. £25,000 p.a. 2. Capital contribution restriction (same as active LLP member)* |
* The capital contribution is calculated in different ways depending on whether:
- The individual member is a partner of a general partnership, an LLP or is a Limited partner.
- The partner is active or non-active.
- For non-active partners**, whether they are in the early years of trading.
**For non-active partners the restriction will depend on whether the non-active partner is in the early years of trading. The early years of trading include the tax year in which the individual first started to carry on the trade and the following three tax years.
Useful guides on this topic
Partnerships: Losses
What loss reliefs are available to partners and what restrictions are there? How to calculate a partner's capital contribution? What are the anti-avoidance rules?
Losses, trade losses and sideways relief
How can trade losses be utilised? What are the restrictions?
Limit (cap) on Income Tax reliefs
What are the limits and restrictions for Income Tax relief? When do they apply?
Adjusted net income
What is Adjusted Net Income? How do I calculate it? Why is it important?
Losses (sideways): Restriction for uncommercial trades
What is sideways loss relief? What restrictions apply? When do they apply? What is an uncommercial trade?
