Income Tax Act 2007 Schedule 2 paragraphs 32–33

Restriction on reliefs for non-active partners: pre-10 February 2004 events

Schedule 2 paragraphs 32–33 provide transitional rules that protect certain pre-10 February 2004 losses, allowances and capital contributions from the restrictions on non-active partner loss relief introduced by section 110.

• An "early tax year" for non-active partner restriction purposes cannot include any tax year whose basis period ended before 10 February 2004, so losses falling entirely within earlier periods are outside the restriction
• Where a basis period straddles 10 February 2004, any part of a loss that derives from capital allowances or qualifying film-related deductions for expenditure incurred before that date is excluded from the restriction, with the split determined on a just and reasonable basis
• Relief attributable to a "pre-announcement allowance" (as defined in the predecessor legislation) is similarly excluded from the section 110 restriction
• Where a partner contributed capital to the firm before 10 February 2004, that capital is reduced for the purposes of the section 110(4) cap by the amount of any excluded pre-announcement relief and any unused pre-announcement allowance that would have been excluded had relief been claimed

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