What is a non-trading loan relationship deficit?
Short version. A non-trading loan relationship deficit is a tax loss from a company’s non-trading loan relationships. It arises when the allowable non-trading debits exceed the taxable non-trading credits. It is not the outstanding loan balance or necessarily a loss in your annual accounts.
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Already have an unused balance from an earlier return? Go to our guide to entering a brought-forward deficit.
1. What it means
A loan relationship is non-trading when the company does not hold it for the purposes of its trade. This can include borrowing by a property investment company. A property business is not a trade for these loan relationship rules.
Interest is a common debit or credit, but the tax rules can cover other amounts too. Use the amounts that qualify for tax purposes, not every bank payment. Repaying the loan principal does not make that repayment an interest expense.
Trading losses, property business losses and non-trading loan deficits are separate categories. Do not put the same amount in more than one category.
A loss on selling an investment is another separate category. See capital losses and their carried-forward restriction. A shared deductions allowance does not make these loss types interchangeable.
2. Property-company example
Suppose a company has £8,000 of allowable non-trading mortgage interest, no non-trading loan credits and £12,000 of taxable rental profit before deficit relief. Assume no other income, reliefs or restrictions. The loan deficit arising is £8,000. A claim to use all of it leaves £4,000 of taxable profit.
If the rental profit were £6,000 instead, the deficit arising would still be £8,000. A current-period claim could use £6,000, leaving £2,000 unused. The deficit is not calculated by subtracting the rent from the mortgage interest. Rental profit determines how much relief can be used, not the loan deficit itself.
3. Using a deficit
Depending on the circumstances, a company can claim relief in the period the deficit arises, carry it forward, claim against certain earlier profits or surrender it as group relief. These are different routes with different conditions. Our brought-forward feature is not a carry-back or group-relief claim.
Eligible post-1 April 2017 deficits can generally be claimed against total profits of a later accounting period. Pre-reform deficits and some restricted deficits can only be used against non-trading profits. Do not assume every old balance qualifies for the total-profits route.
4. Entering your figures
Keep this year’s interest in the relevant interest fields. An unused qualifying deficit brought forward belongs in its own tax-adjustment field, not in this year’s interest or trading losses. Your earlier tax computation is the starting point for finding the unused balance, adjusted for any later claims or amendments.
Our step-by-step filing guide explains the balance, claim and separate return amounts for long accounting periods.
5. HMRC guidance
- HMRC: what non-trading loan relationships and deficits are
- HMRC: claims against profits of the same period
- HMRC: carrying deficits forward and restricted balances
This is general guidance. We provide filing software, not an accounting or tax-advice service. You decide which amounts qualify and declare that your return is correct. If the treatment is unclear, check HMRC’s guidance or ask a qualified tax adviser.