Terminal loss relief when a business stops

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When it applies

Section 89 of the Income Tax Act 2007 gives terminal trade loss relief if you permanently cease to carry on a trade in a tax year (the "final tax year") and make a terminal loss.

Section 90 defines the terminal loss as the loss of the final 12 months:

• the loss from the start of the final tax year to the date you stop; plus
• the loss in the part of the previous tax year that falls within the 12 months before you stop.

How it works

The terminal loss is deducted only from profits of the same trade, in this order (section 91):

1. the final tax year;
2. the tax year before;
3. the year before that;
4. the year before that.

2023/242024/252025/262026/272027/28later →

Trading loss: terminal reliefFinal 12 months of a business

3 years back · latest first

(loss)

carry backcarry forward(loss) = the year the loss arises

Loss of the final 12 months	minus (£15,000)
Against 2026/27 profit of the trade	£0
Against 2025/26 profit of the trade	£6,000
Against 2024/25 profit of the trade	£9,000
Terminal loss left	£0

HMRC’s manual (BIM85055) notes that any part of a loss not relieved this way can be claimed under sideways relief instead — see sideways relief.

The deadline

The general 4-year time limit applies: within 4 years of the end of the tax year the claim relates to (HMRC’s table of time limits in BIM85075).

If the trade stops in 2026/27, claim by 5 April 2031

Claiming

On the 2025–26 self-employment pages, a terminal loss carried back goes in the box for losses carried back to previous years, with the details in "Any other information". The notes say only to make this claim if your business ceased in that tax year, and that the losses you can claim are those of the last 12 months of trade.

When a business stops there are other things to sort out — final accounts, capital allowances on assets you keep or sell, and telling HMRC. Unused losses that can’t be relieved are generally lost once the trade ends, so it is worth getting advice if the figures are significant.

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 89 (legislation.gov.uk)
2. Income Tax Act 2007, section 90 (legislation.gov.uk)
3. Income Tax Act 2007, section 91 (legislation.gov.uk)
4. HMRC Business Income Manual BIM85055: Terminal loss relief (gov.uk)
5. HMRC Business Income Manual BIM85075: Time limits for claims (gov.uk)
6. HMRC helpsheet HS227: Relief for trading losses (2026) (gov.uk)
7. GOV.UK: Stop being self-employed (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.
• 14The cap on loss relief and other restrictionsSeveral loss reliefs against general income are capped at £50,000 or 25% of adjusted total income, whichever is higher. Non-active traders and some partners face a separate £25,000 limit, and uncommercial trades get no sideways relief at all.
• 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.