Income Tax Act 2007 section 74

Restrictions on relief unless trade is commercial etc.

Section 74 restricts early trade losses relief so that it is only available where the trade is carried on commercially, and denies it where a trade has simply been transferred between spouses or civil partners beyond a specified time limit.

• A trade is considered commercial if it is carried on commercially throughout the basis period for the tax year and profits could reasonably be expected either within that period or within a reasonable time afterwards.
• Where a trade forms part of a larger undertaking, the profit expectation test is applied to the undertaking as a whole rather than to the individual trade alone.
• Relief is denied where an individual takes over a trade from a spouse or civil partner with whom they are living, and the loss arises after the four-year window beginning with the tax year in which the spouse or civil partner first carried on the trade.
• These rules apply equally to professions and vocations as they do to trades.