Corporate capital loss restriction for Corporation Tax
Published 11 July 2019
© Crown copyright 2019
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gov.uk.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/corporate-capital-loss-restriction-for-corporation-tax/corporate-capital-loss-restriction-for-corporation-tax
Who is likely to be affected
Large companies and unincorporated associations that pay Corporation Tax and have carried-forward capital losses.
General description of the measure
For accounting periods ending on or after 1 April 2020 companies making chargeable gains will only be able to offset up to 50% of those gains using carried-forward capital losses.
A Corporate Income Loss Restriction (CILR) for carried forward income losses was introduced in 2017 which included an allowance that the first £5 million of profits could be offset with carried-forward losses before the 50% restriction is applied.
The deductions allowance may be set against capital gains. This will ensure that over 99% of companies are unaffected by the restriction.
Policy objective
This measure will ensure that large businesses pay tax for each accounting period in which they realise substantial capital gains.
Background to the measure
This measure was announced at Budget 2018. The government consulted on the measure from 29 October 2018 to 25 January 2019.
A response to that consultation is being published in July 2019 together with draft legislation to provide a further period of technical consultation.
Detailed proposal
Operative date
The measure will have effect where carried-forward capital losses are used to offset chargeable gains accruing on or after 1 April 2020.
Transitional arrangements will apply where an accounting period straddles the above date.
An anti-forestalling provision was announced at Budget 2018 and took effect for any arrangements made on or after 29 October 2018.
Current law
Part I of Taxation of Chargeable Gains Act 1992 (TCGA) sets out how allowable losses can be carried forward and used to offset future chargeable gains. If a company has sufficient carried-forward capital losses it can reduce its net chargeable gains in an accounting period to nil resulting in such companies paying no Corporation Tax in a year where it makes substantial chargeable gains.
The current law covering the CILR can be found at Part 7ZA Corporation Tax Act (CTA) 2010. This restricts a company to offsetting no more than 50% of its relevant profits using relevant carried-forward losses.
The current law covering Basic Life Assurance and General Annuity Businesses (BLAGAB) can be found in Chapter III of Part VI of TCGA. This broadly ring-fences all chargeable gains and allowable losses arising from life assurance businesses.
Proposed revisions
Legislation will be introduced in Finance Bill 2019.
From 1 April 2020, the loss restriction will have the effect that the amount of chargeable gains that can be relieved with carried-forward losses will be restricted to 50%.
The steps for computing the CILR in Part 7ZA CTA 2010 will be amended to facilitate this restriction and enable the sharing of the £5 million deductions allowance which forms part of the CILR.
Basic Life Assurance and General Annuity Businesses (BLAGAB) are excluded from the restriction so far as BLAGAB (ring-fenced) losses are offset against BLAGAB gains. This will be achieved by amendments to the BLAGAB rules and specific provision in Part 7ZA CTA 2010. This measure also includes several clarifications of the BLAGAB rules.
The restriction will not apply to companies with a ring-fence trade from oil-related activities where chargeable gains accrue within that ring-fence.
Real Estate Investment Trusts (REITs) are subject to a specific tax regime that generally exempts chargeable gains. This measure will not apply to capital losses that are attributed in respect of Property Income Distributions (PIDs).
Companies who have one-day accounting periods purely as a result of chargeable gains will be able to claim to access the full £5 million deductions allowance over a financial year in addition to being able to offset allowable losses against other chargeable gains accruing during the same financial year without restriction. Changes will be made within the TCGA to facilitate this change.
An anti-avoidance provision will prevent companies from obtaining a tax advantage in respect of this provision. An anti-forestalling provision was introduced on 29 October 2018 to prevent arrangement intended to forestall the effect of this measure and will be legislated within Finance Bill 2019.
Summary of impacts
Exchequer impact (£m)
| 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 |
|---|---|---|---|---|---|
| nil | +25 | +110 | +140 | +140 | +125 |
These figures are set out in Table 2.1 of Budget 2018 for the measure ‘Corporation Tax: restrict use of carried forward capital losses from 2020-21’ and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2018.
The scorecard figures will be revised at Budget 2019.
Economic impact
This measure is not expected to have any significant macro-economic impacts.
Impact on individuals, households and families
This measure has no impact on individuals as it only affects businesses.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure does not impact on groups sharing protected characteristics, as it only affects companies.
Individuals holding life assurance policies through an insurance company are excluded from this measure so are not affected.
Impact on business including civil society organisations
This measure will impact on about 200 corporates each year who will pay additional tax as a result of this measure, mainly:
- large corporates within banking
- pharmaceutical
- property investment
- utilities
- groups with a large property portfolio
- insurance
The impact on business administrative burdens is expected to be negligible.
One-off costs include familiarisation with the new rules, as well as modification of existing systems following those made for the introduction of CILR.
On-going costs include making a calculation annually to determine if this measures still applies.
There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
HMRC costs including both IT and operational costs to implement this measure are estimated to be approximately £1.5 million.
Other impacts
This will have no impact on climate and fuel poverty targets, or on air quality targets.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact the Business, Assets and International policy team by email: reform.capitalloss@hmrc.gov.uk.