Taxes Consolidation Act 1997 section 381C

Restriction of loss relief - anti- avoidance

Section 381C restricts sideways loss relief where a loss arises from a tax avoidance arrangement and the individual carries on the trade in a non-active capacity.

• A relevant loss is a trading or professional loss (including capital allowances treated as a loss under section 392), but excludes losses from expenditure on significant buildings and gardens, and losses arising from specified capital allowances subject to the USC surcharge.
• Relevant tax avoidance arrangements are arrangements the main purpose, or one of the main purposes, of which is to generate a claim under section 381.
• An individual carries on a trade in a non-active capacity if they do not spend an average of at least 10 hours per week personally engaged in the activities of the trade over the relevant period, carried on commercially with a reasonable expectation of profit.
• Where all three conditions are met — non-active capacity, a relevant loss, and a connection with tax avoidance arrangements — relief under section 381 is denied; such losses may instead be carried forward under section 382.