385 Terminal loss

Summary

This section, together with sections 386 to 389, provides relief in respect of a loss incurred in the final year of a discontinued trade or profession. Broadly, the relief provides that such a loss (referred to as a “terminal loss”), in so far as it has not otherwise been relieved, may be carried back and set against the assessments on the same trade or profession for the 3 years of assessment preceding the year in which the discontinuance occurs. The relief must be claimed by the person who was carrying on the trade or profession, either alone or in partnership, at the time of the discontinuance.

This section is the substantive provision granting the actual relief. Section 386 is concerned with the determination of the amount of the terminal loss which may be relieved. Section 387 is concerned with determining the amount of the profits/gains of the trade or profession against which the terminal loss may be carried back. The meaning of the term “permanently discontinued” for the purposes of the relief is provided for by section 388, while section 389 is concerned with the determination of claims for the relief.

Details

The relief

(1) The relief applies to a person who has sustained a terminal loss (as determined by section 386) in a trade or profession (including a vocation) which has been permanently discontinued. The relief only applies where, immediately before the discontinuance, the trade, etc was carried on by the person either as a sole trader or as a partner in a partnership. Subject to the provisions of this section and of sections 387 to 389, a person claiming terminal loss relief may have the terminal loss set off against the profits/gains of the trade or profession on which the person has been assessed to tax for the 3 years of assessment preceding the year of assessment in which the discontinuance occurs. All necessary amendments of assessments and repayments of tax which are necessary to give effect to the claim may be made. No special time limit for the making of claims or granting of relief is laid down. Thus, where repayment of income tax is involved, the 4 year limit under section 865 applies.

Bar on double relief

(2) Duplication of relief under this section and any other provision of the Income Tax Acts is prohibited.

Order of relief

(3) The relief is given as far as possible from the assessment for a later rather than an earlier year of assessment. The terminal loss, therefore, is to be set, in the first instance, against the profits, if any, of the penultimate year of assessment and so on.

Relevant Date: Finance Act 2019