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Deloitte comments on today’s Finance Bill - loss capping

28 March 2013

Patricia Mock, Deloitte tax director, said: The Finance Bill published today confirms the proposals first made in the March 2012 budget, that the ability to set certain losses off against general income (‘sideways loss relief’) is to be restricted from 6 April 2013 to the greater of £50,000 and 25% of total income.

“The Treasury note the Finance Bill states that this change has been introduced to reduce the scope of exploiting these reliefs for tax avoidance purposes, but it will undoubtedly affect the relief available for genuine business losses. For example, someone setting up a new self-employed business who can at present set off losses made in the first four tax years of trading against general income of the previous three years (i.e. his income before the trade commenced), will find that this will now be restricted in each year to the greater of £50,000 and 25% of the total income.

“As well as trading losses, interest paid on loans to invest in partnerships or close companies is included in the amounts subject to the cap.

“Whilst there have been some improvements to the original proposals; for example, losses created by overlap relief which arise because of the way the tax rules operate when a business starts are now outside the cap. It is unfortunate that concerns that the full relief should be available for all genuine business losses have not been dealt with.  The new rules mean there will be anomalies between different business structures in extent of loss relief, and may mean a reconsideration of the best business structure.”


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