Unincorporated business trading loss relief claim

If your sole trader or partnership business made a loss you can claim relief for it against the tax payable on your other income for that year or the year before. If only part of the loss can be relieved against your income you can make a claim that the relief be allowed against your capital gains for the year of the loss or the previous one.

Trading losses

You can’t offset capital losses against your general income in a tax year. However, you can reduce your capital gains by offsetting sole trader or partnership trading losses which you haven’t been able to offset against other income.

Making a claim

This Trading Loss Relief Claim should not be made on its own - it should be made at the same time as a claim to offset the current year’s trading loss against other total income for the year of loss and/or the previous tax year (s.64 Income Tax Act 2007 claim). A s.64 claim against income of the year must be made first, in full, up to the amount of other income (unfortunately, in many instances this can result in the personal allowance being wasted).

How much of the loss can be offset?

The amount of the trading loss which can be set against the capital gain is the lower of the “relevant amount” and the “maximum amount”. The “relevant amount” is the amount of trading loss that is left over after the s.64 claim has been dealt with (possibly because there is not enough income to fully utilise the loss); the “maximum amount” is the amount of capital gains arising in the year less the capital losses of the same year and unrelieved capital losses brought forward. Once that lower amount has been calculated, it is allowed in the computation before other capital losses brought forward or carried back and definitely before the annual exemption (which may, again, be wasted).

Time limit

The claim must be made within twelve months of 31 January following the end of the tax year in which the loss arose. For example, 31 January 2025 for a loss incurred in the 2022/23 tax year.