Many people think of “partnership losses” as one big pool, but that’s not how the UK tax system works. Each partner’s share of the partnership’s loss is treated as if they had made the loss personally in their own trade. This means each partner chooses, and claims, loss relief individually.
Below is a guide to the main rules and options for partners facing losses in 2025/26.
1. How Partnership Losses Are Allocated
Partnership losses are first calculated at the partnership level. They are then split between the partners according to the profit-sharing agreement in the partnership deed.
After allocation, each partner is treated as a sole trader for loss relief purposes. Relief claims are made on the individual’s own Self-Assessment return.
2. Loss Relief Options for Individual Partners
Once a loss has been allocated, the partner can use it in several ways. The main provisions are:
| Legislation | Relief Type | |
| s.64 ITA 2007 | Offset against net income of the same year and/or the previous year. | |
| s.71 ITA 2007 / s.261B TCGA 1992 | Offset against capital gains (after any s.64 claim). | |
| s.83 ITA 2007 | Carry forward against future profits from the same trade. | |
| s.72 ITA 2007 | Early trade loss relief – available in the first 4 tax years of a new trade (carried back against income of the 3 preceding years on a FIFO basis). | |
| s.89 ITA 2007 | Terminal loss relief – for partners ceasing or retiring (carried back against trading income of the 3 preceding years on a LIFO basis). |
Key points:
- Claims are independent. One partner’s decision does not affect another’s.
- Partners generally prefer relief as soon as possible, but deferring may save more tax if future income will be taxed at a higher rate.
- Avoid wasting your personal allowance – sometimes carrying the loss forward gives a better result.
3. Different Types of Partners and Loss Relief
(a) Existing Partners with New Losses
They can choose between s.64 (current year or carry back), s.83 (carry forward), and s.71 (capital gains relief). If they have no income in the current year, a carry-back claim is often best.
(b) New Partners
A new partner is treated like starting a new sole trade. They can claim s.72 early trade loss relief (losses in the first four years carried back against income of the previous three years, earliest year first), as well as the normal reliefs.
This can give faster or higher-rate tax relief than the standard claims.
(c) Retiring Partners
A retiring partner can claim s.89 terminal loss relief in addition to s.64. The final 12 months’ loss can be carried back against trading income of the preceding three years (latest year first).
4. Allocating a Loss to a Tax Year
From 2024/25 onwards, the tax year basis applies. The loss for a tax year is the loss arising in that year.
- If your accounting period matches the tax year, you simply use that loss.
- If it does not match, apportion between tax years.
Example:
- Accounts year to 31 March 2025 → 2024/25 loss.
- Accounts year to 31 December 2025 → 3/12 to 2024/25 and 9/12 to 2025/26.
If the apportionment gives an overall negative for a tax year, that year shows a loss.
