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HMRC internal manual

Business Leasing Manual

Sale of lessor companies and similar arrangements: change of ownership: exceptions to qualifying change of ownership: election out of charge: Restrictions on losses

Section 398D

This guidance applies where the relevant day falls on or after 5 December 2009 and before 23 March 2011.

The legislation prevents the set off of losses against the profits of the ‘relevant activity’. The relevant activity is the leasing business - which may constitute a trade or property business.

The rules cover losses surrendered to the lessor company as well as losses of the lessor company itself.

S398D lists the relevant restrictions:

  • Trade losses
  • Losses of a UK property business
  • Relief for charitable donations
  • Non trading loan relationship deficits
  • Non trading loss on intangible fixed assets
  • Management expenses

Except to the extent that the loss/expense/charge is attributable to carrying on the relevant activity

  • Group relief

Where a loss/deficit is set against the total profits of a company the amount set off cannot reduce that part of the total profit that is attributable to the relevant activity.

  • Where the company is a controlled foreign company and profits attributable to the relevant activity are apportioned to a UK company section 398D prevents any set off of losses against the apportioned amounts.
  • The company is prevented from being within tonnage tax.