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HMRC internal manual

Company Taxation Manual

Corporation Tax: loss-buying: company reconstructions

Where there has been a company reconstruction to which CTA10/S938 applies (CTM06000+) CTA10/S676 and CTA10/S944 (3) permit looking through the reconstruction and regarding the trade carried on before and after it as one continuous trade.

This means the three-year period of review of the nature and conduct of a trade CTM06370 can cover a period that straddles a reconstruction. The extinction of losses under CTA10/S673 extends to losses incurred both before and after the reconstruction.

In the same way, the time the trade was carried on by a CTA10/S939 predecessor company can be included in the comparison to determine whether the scale of activities in a trade became small or negligible (CTM06390).

The transfer of a trade to a newly set up subsidiary, which is then sold to the intended purchaser, is a common loss-buying device (CTM06210). However, company reconstructions after a change in ownership can be used to disguise major changes that take place later, especially when the purchaser transfers the trade of the newly acquired company to a company with an existing trade.

Normally, the transferee will then carry on one merged trade, but the transferred part will have to be held apart as a separate notional trade for loss relief purposes (CTM06120). The relevant activities of the transferee for CTA10/S673 (2) purposes are only those of the CTA10/S951 part-trade.

A chain of reconstructions may be looked through.