Reasons to be careful
We are living through miserable financial times, but the Government is planning to pile on the pain for the self-employed by restricting tax relief for losses made and interest paid. These deductions will be subject to an annual cap of the higher of:
- £50,000; and
- 25% of the taxpayer’s income.
The law is due to change with effect from 6 April 2013, but the proposed cap on losses and interest will affect investment decisions you have already taken, or are considering, such as:
- How to structure a new business. Losses created within unincorporated businesses from 6 April 2013 onwards will have less scope for relief than at present.
- Where your business will make significant losses for the current accounting period that ends in 2013/14, you may be thinking of offsetting those losses by selling land or other assets standing at a gain. Such plans need to be reviewed if the loss relief is to be restricted in 2013/14.
- If you are planning to invest in Enterprise Investment Scheme or Seed EIS shares in the expectation that if the enterprise goes bust, you will get income tax loss relief on the capital invested, think again. Your loss relief may be restricted.
- Where you have subscribed for shares in a private trading company which is sliding into insolvency, you may need to make a negligible value claim for the value of those shares to ensure the loss falls in 2012/13 – it may be restricted from 2013/14.
- If you pay significant amounts of interest on your partnership loans, you may need to restructure those loans before 6 April 2013, to ensure the loan interest paid does not exceed 25% of your income.
Please talk to us to clarify how the proposed loss and interest relief restrictions will affect your business and investments.
