Darling closes U.K. 'loss relief' loophole
EmptyLONDON -- In his first budget, U.K. Chancellor of the Exchequer Alistair Darling on Wednesday finished closing a tax loophole that already had been partially addressed by his predecessor.
In 2007, Gordon Brown, now prime minister, used his budget to outlaw so-called "sideways loss relief," ending of the use of artificial arrangements by partnerships to create trading losses to offset other income.
The latest measure extends that to include "sole traders." The move is designed to prevent individual film investors' tax returns from offsetting predicted losses in film against profits in other sectors.
"We have made clear over and over again that the government will take action against tax avoidance schemes and that's what they've done today," a U.K. Film Council spokesperson said of the move. "The only specific tax relief for the production of films is the film tax relief, which has been structured to help filmmakers; everything else has a large health warning attached to it."
In detailed budget notes, the government explained: "The new rules will affect non-active sole traders (those spending an average of less than 10 hours a week personally engaged in the trade). Claims to sideways loss relief from these individuals may be either restricted or stopped entirely as a consequence.
"The new rules will introduce a purpose test to ensure that the use of sideways loss relief is for genuine reasons (which denies the relief if failed), and, for those meeting the purpose test, an annual limit on the amount of relief that can be claimed."