The cap on loss relief and other restrictions

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The general cap (section 24A)

Section 24A of the Income Tax Act 2007 limits the total you can deduct from a year’s income under a list of reliefs to the greater of £50,000 and 25% of your adjusted total income for that year.

The capped reliefs include:

• trade loss relief against general income (sideways relief);
• early years relief;
• post-cessation trade relief;
• property loss relief against general income (see rental losses);
• employment loss relief;
• share loss relief — except on shares with EIS, SEIS or SI relief;
• qualifying loan interest, and a few others.

It does not apply to losses so far as they are set against profits of the same trade or property business, to business premises renovation allowances, or to share losses on EIS/SEIS shares. HMRC’s helpsheet HS204 adds that it doesn’t limit trading losses claimed against capital gains.

Adjusted total income is broadly your total income, with payroll giving added back and gross pension contributions taken off. HS204 says you generally only need to work it out if your total income is over £200,000 — below that, the limit is always £50,000.

Trading loss for the year	minus (£60,000)
Total income for the year	£70,000
Maximum set against income (greater of £50,000 and 25% × £70,000)	minus (£50,000)
Loss carried forward	minus (£10,000)

In HS204’s second example, Joan has £160,000 of losses (£75,000 from property capital allowances, £85,000 trading) and total income of £170,000. Only £50,000 can be set against that year’s income; she chooses to carry forward the property loss and use £50,000 of the trading loss now.

Commercial trades only

Section 66 denies sideways relief unless the trade is carried on throughout the tax year on a commercial basis and with a view to profit. HMRC says "commercial" isn’t the same as "profitable" — it means run the way a business of that type would be expected to be run. Hobbies are the target. Early years relief has an even stricter test (see early years relief).

Farming and market gardening: section 67 generally denies sideways relief if a loss (worked out before capital allowances) was made in each of the previous 5 tax years, unless an exception applies — for example a reasonable expectation of profit.

In both cases HMRC’s manual says carry-forward against future profits of the same trade is still allowed.

Non-active traders: £25,000 a year

If you carry on a trade (other than as a partner) in a non-active capacity, section 74A caps sideways relief plus relief against capital gains at £25,000 a year for those losses. You are non-active if you spend less than an average of 10 hours a week personally engaged in commercial, profit-seeking activities of the trade (section 74C). Since 2024/25 the test period is the tax year (or a 6-month period if you start or stop near the year end).

HMRC’s manual says this limit doesn’t apply to professions or vocations, and doesn’t restrict relief against profits of the same trade.

Partners

Limited partners, non-active general partners and non-active LLP members are capped at £25,000 a year by section 103C, after separate restrictions by reference to the capital they contributed. See partnership losses.

Other restrictions in brief

HMRC’s helpsheet HS227 also lists: trades carried on wholly overseas (relief only against certain foreign income), claims under the foreign income and gains regime, certain capital allowances on leased plant, and tax-generated losses from avoidance arrangements, which get no sideways relief.

Questions people ask

Is there a limit on how much loss I can set against other income?

Yes. Several reliefs against general income — including sideways relief, early years relief and property loss relief — are capped at the greater of £50,000 and 25% of your adjusted total income for the year. Non-active traders face a separate £25,000 cap. Losses set against profits of the same trade aren’t capped.

Sources

Checked 4 October 2026 for the 2026/27 tax year. We read these primary sources for this guide:

1. Income Tax Act 2007, section 24A (legislation.gov.uk)
2. HMRC helpsheet HS204: Limit on Income Tax reliefs (2026) (gov.uk)
3. HMRC Business Income Manual BIM85703: The cap on reliefs (gov.uk)
4. Income Tax Act 2007, section 66 (commercial basis) (legislation.gov.uk)
5. Income Tax Act 2007, section 67 (farming) (legislation.gov.uk)
6. Income Tax Act 2007, section 74A (non-active traders) (legislation.gov.uk)
7. Income Tax Act 2007, section 74C (10-hour test) (legislation.gov.uk)
8. Income Tax Act 2007, section 103C (limited and non-active partners) (legislation.gov.uk)
9. HMRC Business Income Manual BIM85705: Commercial basis (gov.uk)
10. HMRC Business Income Manual BIM85765: Non-active traders (gov.uk)
11. HMRC helpsheet HS227: Relief for trading losses (2026) (gov.uk)

Contains public sector information licensed under the Open Government Licence v3.0. This guide adapts and summarises that information in our own words. taxloss.co.uk is an independent guide. It is not affiliated with, endorsed by or connected to HM Revenue & Customs (HMRC) or the UK Government. Spotted something out of date? Tell us.

More on self-employed & partnership losses

• 09Self-employed losses: your options at a glanceIf your trade, profession or vocation makes a loss, income tax law gives you several ways to use it — against other income this year or last, against capital gains, back against earlier years at the start or end of a business, or forward against future profits.
• 10Setting a trading loss against other income (sideways relief)Sideways relief lets you set a trading loss against your total income — a salary, pension, savings or rental income — for the tax year of the loss, the year before, or both. Any unused part can be set against capital gains.
• 11Carrying a trading loss forwardA trading loss you don’t use in other ways can be carried forward and set against later profits of the same trade, first available profits first, for as long as the trade continues.
• 12Early years loss relief: losses in the first four yearsA loss in the first four tax years of a new trade can be carried back against your total income of the three tax years before the loss, earliest year first — often giving a repayment of tax you paid as an employee.
• 13Terminal loss relief when a business stopsWhen you permanently stop trading, the loss of your final 12 months can be carried back against profits of the same trade in the final tax year and the three tax years before it, latest year first.
• 15Losses under the cash basisFrom 2024/25 the cash basis is the default way for sole traders and most partnerships to work out profits — and the old restriction on cash-basis trading losses has gone. Landlords are different: property losses on the cash basis still can’t be set against other income.
• 16Partnership lossesWhen a partnership makes a loss, each partner is treated as having a loss from their own notional trade and claims relief for their share on their own tax return. Limited and non-active partners face extra limits.