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Legislation is to be introduced to limit cap on income tax reliefs to the greater of £50,000 or 25% of income.
The measure, which appears in Finance Bill 2013 following consultation over the summer, will affect the following areas.
- trade loss relief against general income;
- early trade losses relief;
- post-cessation trade relief – available for qualifying payments or qualifying events within seven years of the permanent cessation of the trade;
- property loss relief against general income;
- post-cessation property relief;
- employment loss relief;
- former employees deduction for liabilities;
- share loss relief on non-enterprise investment schemes and seed enterprise investment schemes shares;
- losses on deeply discounted securities; and
- qualifying loan interest, including loans to buy an interest in certain types of company, or to invest in a partnership.
The calculation will be adjusted to include an individual’s charitable donations made via payroll giving and to exclude pension contributions and the “adjusted total income” will be the measure of income for the limit.
The limit will apply to the year of the claim and any earlier or later year in which the relief claimed is allocated against total income. It will not apply to relief offset against profits from the same trade or property business.
Chartered Institute of Taxation president Patrick Stevens welcomed the government’s decision to exclude from the cap share loss relief for shares qualifying for the enterprise investment scheme and seed enterprise investment scheme, as well as overlap relief.
But he was disappointed that other changes suggested in the consultation document were not made.
He said, “Restricting the ability to offset genuine business losses and interest relief could suppress UK entrepreneurship. It is not uncommon to fragment business interests for commercial or regulatory purposes; the results are currently effectively aggregated for tax purposes and the person is taxed on the net income from all activities.
“The cap as drafted will prevent this happening in many cases, taxing many in business on more than they earn.”
