Income Tax Act 2007 section 127A

No relief for tax-generated losses attributable to annual investment allowance

Section 127A prevents property business losses from being relieved against general income where the losses are attributable to the annual investment allowance and arise from tax avoidance arrangements.

• Where a person makes a loss in a UK or overseas property business that has a capital allowances connection and arises from tax avoidance arrangements, the portion of that loss attributable to the annual investment allowance cannot be set against general income.
• For the purposes of this restriction, the loss is treated as being attributable to capital allowances before anything else, and to the annual investment allowance before any other capital allowance, ensuring the annual investment allowance element is always the first to be restricted.
• "Relevant tax avoidance arrangements" are arrangements to which the person is a party, where a main purpose is to use the annual investment allowance to reduce tax liability through property loss relief against general income; "arrangements" is broadly defined to include any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable.
• The restriction applies to property losses arising from arrangements entered into on or after 24 March 2010, unless the arrangements were carried out under an unconditional obligation in a contract made before that date — an unconditional obligation being one that cannot be varied or extinguished by the exercise of any right.