What conditions must be met for a tax year to be a relevant year under ITA 2007 section 86?

For the transfer year, the individual must beneficially own the allotted shares and the company must carry on the trade from the transfer date to 5 April. For subsequent years, both conditions must be satisfied throughout the entire tax year. If either condition fails, the year and later years cease to qualify.

What types of income from the company qualify for relief under section 86?

Any income derived from the company qualifies, regardless of its form. This includes dividends paid on the allotted shares, salary or wages, and any other type of payment from the company. All such income is treated as profits of the former trade for the purposes of carry-forward trade loss relief under this section.

Does section 86 apply only to trades, or does it also cover other businesses?

Section 86 applies equally to businesses that are not technically classified as trades. This ensures that the carry-forward loss relief is available on a broad basis whenever any qualifying business — whether a trade, profession, or vocation — is incorporated in exchange for shares allotted to the individual transferring the business.

Income Tax Act 2007 section 86

Q: What does section 86 of the Income Tax Act 2007 do?

Section 86 allows an individual who transfers a trade or business to a company in exchange for shares to continue setting brought-forward trade losses against income received from that company. The income — whether dividends, salary, or other payments — is treated as profits of the former trade for carry-forward loss relief purposes.

Trade transferred to a company

Section 86 deals with how an individual who transfers a trade (or other business) to a company in exchange for shares can continue to use brought-forward trade losses against income received from that company.

When a sole trader or partnership transfers a trade to a company and receives shares as all or most of the consideration, carried-forward trade losses can be set against income the individual receives from that company
Income received from the company — whether as dividends or otherwise — is treated as though it were profits of the former trade for the purposes of carry-forward loss relief
The relief applies for a tax year only if the individual beneficially owns the allotted shares and the company continues to carry on the trade throughout the relevant period
These rules apply equally to businesses that are not trades

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