A review of Income Tax reliefs limits

Those who own commercial premises can utilise Capital Allowances to mitigate income tax by claiming sideways loss relief against other income. If you own the property and have profits, then ALL of the Capital Allowances can be used.

From the 6th of April 2013 the total amount of certain Income Tax reliefs that can be used to reduce your total taxable income is limited to ￡50,000, or 25% of your income if higher.

The limit applies to the aggregate of the relevant reliefs claimed for a tax year, and is calculated separately for each tax year in which a relief is given effect.

This limit applies in addition to other provisions that restrict the amount of relief that can be used to reduce your total taxable income for the year.

Limited reliefs

The main reliefs subject to this limit are:

• trade loss relief against general income and early trade losses relief - claimed on the self-employment, Lloyd’s underwriters or partnership pages
• property loss relief (relating to capital allowances or agricultural expenses) - claimed on the UK property or foreign pages
• post-cessation trade relief, post-cessation property relief, employment loss relief, former employees deduction for liabilities, losses on deeply discounted securities and strips of government securities - claimed on the additional information pages
• share loss relief, unless claimed on Enterprise Investment Scheme (EIS) or Seed Enterprise Investment Scheme (SEIS) shares - claimed on the capital gains summary pages
• qualifying loan interest - claimed on the additional information pages

If you have claimed any of the above reliefs against your general income and the total amount exceeds ￡50,000, then you could be affected by the limit. The amount of relief that can be set against total income, in the following boxes, may be restricted:

• SA103S Self-employment (short)pages boxes 33 and 34
• SA103F Self-employment (full)pages boxes 78 and 79
• SA103L Lloyd’s underwriterspages box 56
• SA104S Partnership (short)pages boxes 22 and 23
• SA104F Partnership (full)pages boxes 22 and 23 and box 39
• SA105 UK propertypages box 42
• SA106 Foreignpages box 31
• SA101 Additional informationpages ‘Other tax reliefs’ boxes 5 and 6
• SA108 Capital gains summarypages box 12 and box14

Example 2

Joan has a total income of ￡170,000 in 2014 to 2015. She has a property loss, relating to capital allowances of ￡75,000 and a business trading loss of ￡85,000 (total losses ￡160,000).

Because of the limit, only ￡50,000 of Joan’s losses (this is the greater of ￡50,000 and 25% of her income) can be set against her income of 2014 to 2015.

As Joan’s losses exceed her limit, and as it is more likely that her property business will make a profit the following year, she chooses to carry forward the full ￡75,000 property losses.

She can set ￡50,000 of the business trading losses against her income in the 2014 to 2015 tax year with the remaining ￡35,000 losses being carried forward to the following year.

Where the total of losses and loan interest payments exceeds the limit, it can be beneficial to have the maximum possible loan interest payments set against income in the given tax year. This is because these payments cannot be carried forward or back and they would otherwise be lost.

 Call me on 0845 467 2765 to discuss further.