Interestingly, the Government will restrict an individual’s ability to claim income tax reliefs on an annual basis with effect from 6 April 2013. A new cap of the greater of £50,000 and 25% of income will apply to any individual seeking to claim more than £50,000 in tax reliefs. Importantly, we understand that the new cap will not apply to tax reliefs such as EIS/VCT and pensions which already have annual limits.
This is an interesting development. Over the years there have been a number of structured products which have enabled individuals to access trading losses in a number of different sectors including film, real estate and renewable energy and use such trading losses to mitigate personal tax liabilities. HMRC has introduced a raft of different legislation aimed at counter-acting such structures with limited effect.
However, the new cap will effectively make this practice less attractive. The draft legislation has not yet been published but unless any specific exemptions are included, we cannot see why the new rules will not impose a limit on the following tax reliefs (amongst others):
(a) trading losses that can be accessed by an individual by way of sideways loss relief (even if the individuals are actively involved in the trade);
(b) interest relief on certain borrowings;
(c) capital losses on shares in unquoted trading companies (that can usually be offset against income); and
(d) enhanced capital allowances.
We will provide a further update as soon as the draft legislation is published.