Guidance for companies to work out and claim relief from Corporation Tax on terminal losses, capital losses and property income losses.
If your company or organisation is liable for Corporation Tax and makes a loss from trading, the sale or disposal of a capital asset or on property income, then you may be able to claim relief from Corporation Tax.
You get tax relief by offsetting the loss against your other gains or profits of your business in the same accounting period. You can also choose to carry the loss back, or it will be carried forward to another accounting period.
This guide covers:
There’s separate guidance to work out and claim trading losses.
Terminal Relief for losses in the final 12 months of trade
If your company or organisation stops trading, you may be able to claim Terminal Loss Relief.
This relief allows you to carry back any trading losses that occur in the final 12 months of a trade and set them off against profits made in any or all of the 3 years up to the period when you made the loss.
For each year, you can only offset the loss against the profits in that year if your company or organisation was carrying on the same trade at some point in the accounting period or periods that fall in that year.
If the accounting period end date has changed, or any of the earlier accounting periods in that 3 year period are less than 12 months, then you’ll have to apportion the profit.
The loss can only be offset against that portion of the profits falling within the 3 year period.
Any loss must be offset against the profits of most recent years first, before it can be carried back to earlier years. Losses must be made in the order they’re made, starting with the earliest.
There are measures to prevent companies getting Terminal Loss Relief when the trade is transferred to another person, and the sole or main reason for that transfer is to get Terminal Loss Relief.
Terminal Relief for carried forward losses of a trade from 1 April 2017
From 1 April 2017, if your company or organisation stops trading, you may be able to claim Terminal Loss Relief for carried forward losses of that trade.
This is designed to give additional relief to companies and organisations that have been prevented from fully relieving profits of the final 3 years of a trade, due to restrictions on relief for carried forward losses.
Terminal relief for carried forward losses of a trade is not subject to the restrictions on amounts that can be relieved using carried forward losses in periods from 1 April 2017.
Losses that can be used are trade losses carried forward to the final accounting period when the trade ceased. These losses can be used to reduce profits:
- of the final accounting period
- for earlier periods up to 3 years before the end of the final accounting period
You can only use this relief to reduce profits of the 3 years ending with the end of the period in which trading stopped. This is not the same as the 3 year period that applies for losses that occur in the final 12 months of the trade.
If the final accounting period and final 12 months of trade begin on 1 January 2025 and end on 31 December 2025, the 3 year period for terminal relief for:
- losses of the trade incurred in the final 12 months will begin on 1 January 2022 and end on 31 December 2024.
- carried forward losses of the trade will begin on 1 January 2023 and end on 31 December 2025.
In both cases, if one of the earlier accounting periods falls partly within and partly outside the 3 year period, then you’ll have to apportion the profit of that accounting period.
You cannot use terminal relief for carried forward losses of a trade to offset profits apportioned outside its particular 3 year period.
Any loss must first be offset against the profits of most recent years before being carried back to earlier years.
You can only claim this relief to reduce profits of periods from 1 April 2017.
You can only claim relief against profits for periods later than one when the loss you’re using was originally sustained, even if there are earlier periods within that 3 year period.
This applies to each amount of loss that’s been carried forward to the final period.
You cannot claim this relief to reduce profits for either:
- the period in which the loss you’re using was originally sustained
- any previous periods
How to claim Terminal Loss Relief
As long as you’re within the time limit, you can make your claim:
- in your return
- in an amendment to the return
- in a letter
Your claim should include:
- the name of your company or organisation
- the period when the loss is made
- the amount of the loss
- how the loss is to be used
You can send your claim with your return, or post it separately to HMRC.
Depending on your other Corporation Tax liabilities, you may receive a repayment if both of the following apply:
- you’ve already paid the Corporation Tax that’s due for an accounting period or periods falling within the earlier 3 years
- setting off your loss in this way reduces your Corporation Tax liability for that period or periods
See an example of how Terminal Loss Relief can be offset against earlier profits.
Time limits to claim Terminal Loss Relief
Terminal relief for losses of the final 12 months of a trade
Make your claim within 2 years of the end of the accounting period when you made the loss.
Terminal relief for carried-forward losses of a trade
Make your claim within 2 years of the end of the accounting period in which trading stopped.
When your company or organisation sells or disposes of a capital asset, it might make a loss instead of a profit.
These capital losses are treated differently from trading losses and cannot be offset against trading income.
Allowable capital losses are set off automatically.
Property income losses
Your company or organisation might earn property income (if it rents out business or other premises, for example).
Separate rules apply to losses on property income. These losses:
- must be offset against other profits in the same accounting period
- cannot be carried back to be offset against profits from earlier accounting periods
- can be carried forward and offset against other profits in the next accounting period if it cannot be used in the same period and has not been used as group relief, as long as the property business is still being carried on in that accounting period
If the company or organisation is a member of a group then losses on property income can be offset against profits of other members of the group if they arise in the same accounting period, but only if they’re more than the company’s own profits for the period.
Carry a property income loss forward
Certain losses that your company has not used in any other way can be offset against profits in future accounting periods.
Profits that arise from 1 April 2017
For profits of accounting periods beginning from 1 April 2017 there are also restrictions on the total amount that can be relieved. These apply for carried forward UK property income losses.
The total overall amount that can be relieved using most types of carried forward losses, including UK property income losses incurred either before or after 1 April 2017, is restricted to, broadly, the amount of an allowance up to £5 million, plus 50% of remaining profits after deduction of the allowance.
Groups or singleton companies are entitled to a £5 million overall allowance per 12 month period, and can choose how this is allocated.
Non-resident companies with an existing UK property business at 5 April 2020
Non-resident companies that carry on a UK property business are chargeable to Corporation Tax from 6 April 2020. If you have a UK property business loss that arose before 6 April 2020, the cumulative loss will be carried forward to the Corporation Tax regime and you will be able to use it from 6 April 2020 in the same way as before.
You can offset this loss against future profits from the same UK property business or any non-trading loan relationship profits relating to that UK property business without restriction but the Income Tax loss cannot be relieved against Capital Gains.
Losses brought forward from the Income Tax regime are to be used in priority to any losses made on or after 6 April 2020 under the Corporation Tax regime. This type of loss is not affected by the restriction to relief for carried-forward corporation tax losses that applies from 1 April 2017.
Interaction of Corporation Tax Loss with Income Tax Property Losses
A company prepares accounts to 31 December each year. In the year ended 31 December 2021, it made a UK property business loss of £16 million. In the following year ended 31 December 2022, the company makes a profit of £9 million. There are Income Tax Property Losses ‘ITPL’ carried forward at 31 December 2020 of £2 million. The company is not part of a group so that it is entitled to the full Deduction Allowance of £5 million.
A claim is made for the loss of £16 million to be carried forward from the accounting period ended 31 December 2021 and relieved against total profits of the year ended 31 December 2022 as follows:
The carried forward ITPL must be used before the carried forward Corporation Tax loss. The ITPL is allowed without restriction.
|Total Profit APE 31/12/2022||£9 million|
|Less Income Tax loss brought forward||£2 million|
|Net amounts||£7 million|
|Less deductions allowance||£5 million|
|Net amount||£2 million|
|50% taxable profits||£1 million|
|Taxable profits||£1 million|
The company will have a taxable profit of £1 million (£9 million total profit less £2 million ITPL and £6 million Corporation Tax loss) for its Corporation Tax accounting period ending on 31 December 2022.
The unused Corporation Tax loss of £10 million (£16 million total loss less £6 million used loss) will be carried forward and used against total profits in the next accounting period, subject to the loss restriction rules.
There is no balance of Income Tax loss to carry forward.
More information about changes to relief for carried-forward losses
Read the loss reform guidance for more information about the way relief for carried-forward losses changed from 1 April 2017.