Revenue Note for Guidance

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Revenue Note for Guidance

381B Restriction of loss relief – passive trades

Summary

This section (inserted by 11 of the Finance Act 2014) modifies and limits the use of section 381 in circumstances where an individual carries on a trade in a non-active capacity. Any losses which are not available for relief under section 381 pursuant to the operation of this section are available for carry forward under section 382.

Details

(1)(a)Relevant loss” means a trading or professional loss, including any amount of current year capital allowances which by virtue of section 392 are available for relief under section 381, other than a loss which relates to:

  • a farming or market gardening loss (they have an equivalent restriction under section 662),
  • a loss generated from specified property reliefs to which the USC property relief surcharge applies (they have an equivalent restriction under section 409 – 409E),
  • a loss treated as a trading loss (e.g. from Lloyds business or expenditure on significant buildings under section 482).

(1)(b) For the purposes of section 381B, an individual carries on a trade in a non-active capacity during a period if, during that period, that individual does not work for the greater part of his or her time on the day to day management or conduct of the trade / profession.

A person cannot be said to work for the greater part of his or her time on the day to day management or conduct of the trade or profession during a period unless:

  • on average, during the period, the individual spends 10 hours a week
  • personally engaged in the activities of the trade or profession and
  • those activities are carried on on a commercial basis
  • in such a way that profits of the trade or profession could reasonably be expected to be made in the period or within a reasonable time there after.

(2)(a) & (c) A person who does not meet the test set out in (1)(b) is a passive trader. A passive trader who wishes to claim section 381 relief in a year of assessment is subject to a cap on the maximum amount of relief that can be claimed. That cap is, in most instances, €31,750 per year. This is regardless of the number of passive trades that the individual carries on.

(2)(b) If a passive trader was carrying on the trade for a period which is shorter than 12 months (e.g. in a start up or cessation period), then the cap is reduced proportionately.

Relevant Date: Finance Act 2019