Best use of losses when closing a self-employed business

bluemeanies

Hello, I am closing down an unincorporated business with losses in the tens of thousands. I would greatly appreciate some advice on how I can use these losses to minimise my tax bill. I appreciate I may need to pay for specialist advice, but I would like to understand what my options are first so that I know what to ask.

- The business has losses of several tens of thousands of pounds, mostly incurred in 2021/22 and 2022/23.

- My other income is around double the personal allowance.

- In the tax year 2026/27 I shall be able to access a personal pension whose taxable portion (the 75% left over after the 25% tax-free lump sum) is a bit larger than the losses. I fully intend to withdraw this pension over as few tax years as possible, starting as soon as possible.

I want to avoid wasting my losses by having to offset them against the £12k personal allowances each tax year. I have no substantial income in any recently preceding tax years, and I won't have in the next several, except for my intended pension withdrawal.

In an ideal world, I would just choose to offset these losses against the pension income in the 2026/27 tax year. They would offset most of my taxable pension withdrawal and leave me in the 20% income tax bracket. This is what I would have done if I wasn't closing the business. 

Because I do intend to close the business, I have done a bit of web research and it looks like I will have to do something with the losses in the tax year that I cease trading - I can't simply carry them forward to 2026/27 as the business will no longer exist? I have read about sideways loss relief and terminal loss relief, neither of which offer me much tax benefit. 

• So, do I have to use up the losses in any available sideways loss relief and terminal loss relief in the tax year I cease trading?

• Or can I opt to take neither sideways loss relief nor terminal loss relief, thereby having an income tax loss?

• If I can just take an income tax loss, does it have to be offset against my other income in this and subsequent tax years, or can I carry it forward, unused, to a year of my choosing?

• If the answers to the above questions would leave me wasting my losses against several year's £12k personal allowances, can I delay the closing of the business until 2026/27 where I expect this pension income? It would not be viable to continue the business in its current form - it's a lot of time and a lot of losses each year. But I don't think there's such a thing as a dormant non-incorporated business? What legally would have to be happening for me to delay the business closure to 2026/27?

DullGreyGuy

Were you accounting on a cash or accrual basis?

bluemeanies

Accruals. 

mlz1413

Do you have an accountant that did your tax return for you?
It sounds like you need an accountant or financial adviser to go through each option with you, fully discussing each ones implications.

Bookworm105

treatment of losses is one of the main technical areas best left to paid advice from a qualified accountant