How does the two-step deduction process work for employment loss relief under ITA 2007 section 129?

At Step 1, the employment loss is deducted from net income for the tax year specified in the claim. At Step 2, if the claim covers both tax years, any unrelieved balance is deducted from net income for the other tax year. Each step is subject to limits in sections 24A and 25(4) and (5).

What is the priority rule when two loss claims target the same tax year under section 129?

When employment loss relief claims from two successive tax years both target the same tax year, the claim relating to the earlier loss year takes priority and its deductions must be made first. This ensures a clear ordering when two claims compete for the same pool of general income.

Does the section 129 priority rule apply when one claim is for trade loss relief?

Yes. The priority rule applies equally where the competing claim is a trade loss relief claim against general income under sections 64 to 70. If an employment loss from one year and a trade loss from the next both target the same tax year, the earlier employment loss claim still takes priority.

Can you give an example of how the section 129 priority rule works in practice?

If a person has £60,000 income, a £25,000 employment loss from 2023/24, and a £20,000 trade loss from 2024/25, both claimed against 2023/24 income, the employment loss is deducted first reducing income to £35,000, then the trade loss reduces it to £15,000.

Income Tax Act 2007 section 129

How relief works

Section 129 sets out the mechanics of how employment loss relief is deducted from general income and establishes priority rules when competing loss claims relate to the same tax year.

Employment losses are deducted from net income in a two-step process: first against the specified tax year, then any unrelieved balance against the other tax year if the claim covers both years
The amount of loss that can be deducted at each step is capped by the rules in sections 24A and 25(4) and (5)
Where claims for employment losses from two successive tax years both target the same tax year for relief, the claim relating to the earlier loss year takes priority
The priority rule applies equally where the competing claim is a trade loss relief claim against general income under sections 64 to 70

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