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October 16, 2013
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Limit on Income Tax Reliefs - FA 2013

From 6 April 2013 the amount certain reliefs, including the following, are restricted per individual:-

  • Sideways relief for trading losses against total income, (ITA 2007 s64)
  • Post cessation trade relief  (available for certain payments made within seven years of the permanent cessation of trade);
  • Property loss relief against general income and post cessation,
  • Employment loss relief (available in certain circumstances where losses or liabilities arise from employment);
  • Share loss relief under s131 ITA 2007,
  • Losses on deeply discounted securities arising on losses on gilt strips and listed securities held since 26 March 2003;
  • Qualifying loan interest (available for interest paid on qualifying loans including loans to buy shares in trading companies or to invest in a partnership.

The rules restrict the deduction relievable to £50,000 or to 25% of the taxpayer's adjusted income, which ever is greater.  It should be noted that there are some complexities in relation to the calculation of adjusted income, including the affects of pension contributions.

Equally as important to note are the reliefs that are not restricted by these rules:-

  • Relief for charitable donations
  • Trading or property business losses to carry forward
  • Overlap relief
  • Business Premises Renovation allowances
  • Pension contributions (although these are limited under other rules)
  • Relief for SEIS or EIS qualifying investments
  • Reliefs for any taxes other than income tax

It is thought by commentators that one of the prime objectives of this new legislation is to stop entrepreneurs from wiping out their tax liability by structuring business financing through debt.  Also, the restriction on relief for trading losses against total income could affect entrepreneurs, especially in the early years of trading.

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