Chapter 18 - Partnership Losses

Question 1

Intro

Answer 1

Allocate losses the same way we do profits: adjust accounts for tax adjusted loss, allocate according to ratio and then treat each partner as a sole trader.

Question 2

Loss Relief

Answer 2

Once the loss is allocated, each partner is able to claim loss relief based on their own circumstances:
- S.64, S.71, S.83, S.72 (new partner), S.89 (retiring)

Question 3

New Partners and Losses

Answer 3

When a partner joins, they are subject to opening year rules, therefore S.72 early trade loss relief is available in addition to S.64 (current year/carry back) and s.71 (cap gains)

Question 4

Retiring Partners

Answer 4

Retiring partners are subject to CYB cessation rules. S.89 (terminal loss relief) is available in addition to S.64

Question 5

Notional Losses

Answer 5

In some cases, profit allocations may create a loss for a partner when the partnership as a whole made a profit. These losses are notional losses, and HMRC does not allow relief for them. When they occur, they must be allocated to the other partners who are making profit according to the profit sharing ratio

Question 6

Restriction on Loss Relief

Answer 6

Greater of:
£50,000 or
25% of adjusted total income