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A limit is placed on the amount that an individual may deduct by way of certain specified reliefs from 6 April 2013 onwards. The limit is set at £50,000 or 25% of the individual’s adjusted total income for the tax year if this is greater.

The reliefs subject to the limit include income tax loss reliefs, but not charitable donations and contributions to registered pension schemes.

Where reliefs available for the year exceed the limit, care should be taken to ensure that maximum relief is obtained subject to the cap, such as carrying back losses to the previous year or carrying trade losses forward, rather than relieving in the current year. It is advisable that professional advice is sought.

Example:
Geoff has income for 2015/16 of £180,000. He makes a trading loss of £60,000. He had no income in 2014/15.

Geoff wishes to set the loss against his general income of 2015/16. However, the relief available for that year is capped at £50,000 as this is greater than 25% of his income (£45,000).

He can claim loss relief of £50,000 for 2015/16. As he had no income in 2014/15, he cannot carry the remaining £10,000 of the loss back. Therefore he must carry it forward for relief against future profits.