Income Tax (Trading and Other Income) Act 2005 section 856

Overlap profits from partners' notional businesses

Section 856 provides a special rule ensuring that where the deduction of overlap profit from a partner's notional business exceeds the profits for the tax year, the excess can still be relieved against the partner's total income.

• When a partner's accounting date changes, or when the partnership trade ceases, overlap profit may need to be deducted from the notional business profits for that tax year
• If the overlap profit deduction exceeds the notional business profits for the year, an excess arises that would not normally qualify for relief because it is not a trading loss
• This section ensures the excess is deducted from the partner's total income for the tax year, preventing the relief from being lost
• The rule applies both to changes of accounting date (in the third or a later tax year) and to the final tax year when the partnership trade ceases

---