Income Tax Act 2007 (c. 3)

Part 4 U.K. Loss relief

Chapter 4 U.K. Losses from property businesses

Property loss relief against general income U.K.

120 Deduction of property losses from general income U.K.

(1) A person may make a claim for property loss relief against general income if—

(a) in a tax year (“the loss-making year”) the person makes a loss in a UK property business or overseas property business (whether carried on alone or in partnership), and

(b) the loss has a capital allowances connection or the business has a relevant agricultural connection.

(2) The claim is for the applicable amount of the loss to be deducted in calculating the person's net income—

(a) for the loss-making year, or

(b) for the next tax year.

(See Step 2 of the calculation in section 23.)

(3) The claim must specify the tax year for which the deduction is to be made.

(4) But if the applicable amount of the loss is not deducted in full in giving effect to a claim for the specified tax year, the person may make a separate claim for property loss relief against general income for the other tax year.

(5) For this purpose “the other tax year” means the tax year which was not specified in the claim already made, but which could have been specified.

(6) This section needs to be read with—

(a) section 121 (how relief works),

(b) section 122 (meaning of “the applicable amount of the loss”),

(c) section 123 (meaning of “the loss has a capital allowances connection” and “the business has a relevant agricultural connection”), and

(d) section 124 (supplementary).

[F1 (7) See also section 127A (no relief for tax-generated losses attributable to annual investment allowance) [F2 and section 127B (no relief for tax-generated agricultural expenses)] [F3 and section 127BA (restriction of relief: cash basis)].]

Textual Amendments

F1 S. 120(7) inserted (8.4.2010 with effect in accordance with s. 25(5)-(7) of the amending Act) by Finance Act 2010 (c. 13), s. 25(3)

F2 Words in s. 120(7) inserted (17.7.2012) (with effect in accordance with s. 10(5)-(7) of the amending Act) by Finance Act 2012 (c. 14), s. 10(3)

F3 Words in s. 120(7) inserted (with effect in accordance with Sch. 2 para. 64 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 2 para. 62(2)

121 How relief works U.K.

(1) This subsection explains how the deductions are to be made.

The amount of the applicable amount of the loss to be deducted at any step is limited in accordance with [F4 sections 24A and 25(4) and (5)].

Step 1

Deduct the applicable amount of the loss in calculating the person's net income for the specified tax year.

Step 2

This step applies if the applicable amount of the loss has not been deducted in full and the person makes a separate claim for the other tax year.

Deduct the part of the applicable amount of the loss not deducted at Step 1 in calculating the person's net income for the other tax year.

Other relief

If the applicable amount of the loss has not been deducted in full at Steps 1 and 2, relief is given under section 118 for the part not so deducted.

(2) There is a priority rule if—

(a) a person makes a claim for property loss relief against general income (“the prior claim”) in respect of a loss made in a tax year,

(b) the prior claim specifies the next tax year as the one for which the deduction is to be made (“the relevant tax year”),

(c) the person makes another claim for property loss relief against general income in respect of a loss made in the relevant tax year, and

(d) that other claim also specifies the relevant tax year as the one for which the deduction is to be made.

(3) The rule is that priority is given to making deductions under the prior claim.

Textual Amendments

F4 Words in s. 121(1) substituted (with effect in accordance with Sch. 3 para. 3 of the amending Act) by Finance Act 2013 (c. 29), Sch. 3 para. 2(3)(c)

122 Meaning of “the applicable amount of the loss” U.K.

(1) This section defines “the applicable amount of the loss” for the purposes of sections 120 and 121.

(2) “The applicable amount of the loss” is—

(a) the amount of the loss, or

(b) if less, the amount arising from the relevant connection (see subsections (3) to (5)).

(3) If—

(a) the loss has a capital allowances connection, but

(b) the business does not have a relevant agricultural connection,

the amount arising from the relevant connection is the amount (“the net capital allowances”) by which the capital allowances exceed the charges under CAA 2001.

(4) If—

(a) the business has a relevant agricultural connection, but

(b) the loss does not have a capital allowances connection,

the amount arising from the relevant connection is the amount of the allowable agricultural expenses.

(5) If—

(a) the loss has a capital allowances connection, and

(b) the business has a relevant agricultural connection,

the amount arising from the relevant connection is the sum of the net capital allowances and the amount of the allowable agricultural expenses.

123 Meaning of “the loss has a capital allowances connection” and “the business has a relevant agricultural connection” U.K.

(1) This section applies for the purposes of sections 120 and 122.

(2) The loss has a capital allowances connection if, in calculating the loss—

(a) the amount of the capital allowances treated as expenses of the business, exceeds

(b) the amount of any charges under CAA 2001 treated as receipts of the business.

[F5 (2A) But any allowance under Part 2A of CAA 2001 (structures and buildings allowances) is to be ignored for the purposes of subsection (2).]

(3) The business has a relevant agricultural connection if—

(a) the business is carried on in relation to land that consists of or includes an agricultural estate, and

(b) allowable agricultural expenses deducted in calculating the loss are attributable to the estate.

(4) “Agricultural estate” means land—

(a) which is managed as one estate, and

(b) which consists of or includes land occupied wholly or mainly for purposes of husbandry.

(5) “Allowable agricultural expenses”, in relation to an agricultural estate, means any expenses attributable to the estate which are deductible—

(a) in respect of maintenance, repairs, insurance or management of the estate, and

(b) otherwise than in respect of interest payable on a loan.

(6) But expenses attributable to the parts of the estate used wholly for purposes other than those of husbandry are to be ignored.

(7) And if parts of the estate are used both—

(a) for purposes of husbandry, and

(b) for other purposes,

the expenses in respect of those parts are to be reduced so far as those parts are used for the other purposes.

Textual Amendments

F5 S. 123(2A) inserted (5.7.2019) by The Capital Allowances (Structures and Buildings Allowances) Regulations 2019 (S.I. 2019/1087), regs. 1, 6

124 Supplementary U.K.

(1) A claim for property loss relief against general income must be made on or before the first anniversary of the normal self-assessment filing date for the tax year specified in the claim.

(2) If a loss has previously been carried forward under section 118, the claim must be accompanied by the amendments of any return made under—

(a) section 8 of TMA 1970, or

(b) section 8A of TMA 1970,

that are necessary to give effect to section 118(5) (reducing the amount of the loss carried forward (if necessary, to nil)).