FHL loss position - property moved to partnership

Would losses b/fwd for a jointly owned FHL be lost if the property was tf to a partnership?

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A married couple whom own 3 FHL properties , all on the same site, wish to register a partnership, which would include a trade which is currently undertaken by the wife as a sole trader and the 3 FHL properties which are currently included on their personal tax returns as jointly owned property on the land and property supplementary pages.

Currently there is a loss brought forward from earlier years for the FHL properties which is unlikely to be fully utilised in the current tax year (2019/20).

This leaves the question as to whether the losses they currently both hold as individuals would be lost if they moved to the partnership status for the new tax year (2020/21). 

If the FHL business was such that it qualified as trading (it does not) there would be no cessation and the partnership would be viewed as a continuation of the sole trade business and the losses from sole trade could be set against each partners share of the partnership profits.

FHL businesses are referred to as a deemed 'trade' and I am wondering if the same would be true for these losses - in that this would be the same 'trade' continuing (albeit in partnership) with the existing losses being available to carry forward against future profits from the FHL.

For the avoidance of doubt I am aware that the income and expenditure for the FHLs would be dealt with in the land and property sections of the partnership tax return and would be separate to the trading income of the partnership.

I hope the above makes sense - trying to keep it concise - and would be most welcoming of any pointers from someone whom might have dealt with a similar situation.

Have a lovely Friday!

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By The Dullard
09th Mar 2020 11:27

An FHL is not a deemed trade (for Income Tax purposes); it receives a number of advantages that are otherwise only available to trades.

You are referring to the notional trade rules in ITTOIA 2005, s 852-853, which only apply to partnerships with trading income.

However, if a partnership has both trading income and other partnership income sources (like FHL) income there are similar notional business rules.

Unfortunately though, these don't go as far as deeming the notional business to be a continuance of what was there before.

So, you have losses in one capacity (individual joint owner) that you will not be able to set against subsequent profits in another capacity (partner in a partnership). See PIM4210.

Happy Monday!

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