Income Tax Act 2007 section 113

Unrelieved losses brought forward

Section 113 explains how trade losses that were previously blocked from sideways relief or capital gains relief (because of the restrictions on non-active partners in early tax years under section 110) can be carried forward and treated as losses of a later tax year in which the partner is still active in the firm or contributes to its assets on winding up.

• Where sideways relief or capital gains relief was denied in earlier years under the non-active partner rules, the unrelieved losses are treated as if they arose in the current tax year, provided the individual is still a partner or contributes to the firm on its winding up
• Losses are excluded from this carry-forward treatment to the extent that relief has already been given or could have been claimed for them under this section in earlier years, or any other Income Tax Acts relief has already been obtained
• For the purposes of applying the restrictions on LLP members and non-active partners to these carried-forward losses, the individual is treated as a non-active partner and the current year is treated as an early tax year
• If the individual only contributed to the firm's assets on winding up (rather than carrying on the trade as a partner in the current year), the commercial trade restrictions do not apply to the carried-forward losses, and the capital contribution is measured at the end of the tax year rather than the end of the basis period