PM245000 | When do the restrictions apply?

The excess loss allocation restrictions apply when:

• an individual is a partner in a firm and makes a trading or property business loss;

• which arises, wholly or partly, as a consequence or in connection with tax avoidance arrangements to which the individual is a party, a main purpose of which is to secure that losses are allocated or arise to the individual, rather than a non-individual, see PM224000; and

• with a the individual obtaining relief for the loss.

The restriction is not prevented from applying to the non-individual partner if:

• they are not a partner in the firm

• they are unknown

• they do not exist at the time does not prevent the restriction applying

Where there is no non-individual member and no plans for there to be in future, there may still be a relevant tax avoidance arrangement if the business giving rise to the loss is sold or transferred by the partnership to a non-individual who is not in partnership if that transfer is part of the arrangement.

A relevant tax avoidance arrangement can be any agreement, understanding or any form of arrangement for the loss to be allocated to one or more individuals rather than a non-individual.

The allocation of the losses does not have to be the main purpose of the arrangements, only one of the main purposes.

Example

For the purposes of the loss rules an overseas individual remains an individual.

EXP LLP expands its overseas operations. For regulatory reasons, its operations it sets up a local partnership the EXP partnership. A, B and C are members of both EXP LLP and the EXP partnership.

In the first year, EXP partnership makes a loss which is allocated to A, B and C, local members D, E and F receiving neither a profit nor loss.

The excess loss provisions do not apply as an overseas individual is still an individual.