»Ê¹ÚÌåÓýapp

When the aforementioned excess loss restrictions (PM245000) apply, no loss relief is available to the individual for their losses from the partnership.

Example 1

Basic example of when the provisions apply.

An LLP has 100 individual members and 1 company member. Each of the individual members introduces capital of £40,000 and the company member provides capital of £60m (total capital £100m). »Ê¹ÚÌåÓýapp LLP spends the £100m on an asset that qualifies for 100% upfront tax relief generating a £100m tax loss (but not an accounting loss) in the first year of business but with a significant income stream in later years. »Ê¹ÚÌåÓýapp profit sharing agreement provides that:

• In year 1, all the profits or losses are allocated to the individual members; and
• In year 2 onwards, all or most of the profits are allocated to the company member.

»Ê¹ÚÌåÓýapp LLP agreement is written so that the individuals can claim the loss relief. Allowing the individual to access the losses, rather than the non-individual is clearly one of the main purposes.

»Ê¹ÚÌåÓýapp excess loss allocation legislation prevents the individual obtaining relief for these losses.

Example 2

»Ê¹ÚÌåÓýapp legislation can apply where the non-individual does not yet exist.

OPQ LLP is set up to run a business for its first few years when it is making a loss for tax purposes. »Ê¹ÚÌåÓýapp members of OPQ LLP are individuals, including P.

»Ê¹ÚÌåÓýappre are arrangements for the business to be sold to a subsidiary of the TFG Group when the business starts making profits. »Ê¹ÚÌåÓýapp TFG Group does not know what subsidiary will acquire the business, or whether it will form a new subsidiary for the purpose.

As a member of the LLP, P is allocated a share of the loss.

»Ê¹ÚÌåÓýapp legislation applies as P makes a trading loss as a member of the firm. This loss arises from the arrangements, to which P has signed up, that ensure that the loss is allocated to an individual, rather than arising to a subsidiary of the TFG Group, so that P and the other individuals can claim loss relief.

»Ê¹ÚÌåÓýapp excess loss allocation legislation prevents the individual obtaining relief for these losses.