CTM06855 - Corporation Tax: loss buying: transfer of trade: introduction

CTA10/PART14/CH2E

In many situations where a trade is transferred between companies in common ownership, CTA10/PART22/CH1 allows losses to be carried forward from periods before the transfer and relieved in periods following the transfer. (CTM06005)

However, Chapter 2E, Part 14 restricts companies’ ability to obtain relief for these losses in certain circumstances following a change in company ownership. The effect is to prevent groups from using the transfer of a trade to bypass other loss buying rules, such as the restriction on group relief for carried-forward losses at CTA10/PART14/CH2C.

There are two restrictions on the successor company’s ability to use losses of the transferred trade:

  • A restriction on relief against total profits (s676EB), and
  • A restriction on surrendering losses for group relief for carried-forward losses (s676EC).

The restriction on relief against total profits applies (CTA10/S676EB) where:

  • There is a change in ownership of a company which occurs on or after 1 April 2017,
  • The company whose ownership has changed transfers a trade to another company (the successor company),
  • The trade is transferred at a time no more than three years before or five years after the change in ownership, and
  • Chapter 1, Part 22 applies to the transfer.

The restriction on surrendering losses for group relief for carried-forward losses applies in the same circumstances. However, it also applies where the predecessor company, whose trade is transferred to the successor company, is not the transferred company but is a co-transferred company.

This restriction does not affect the successor company’s ability to surrender any losses of the transferred trade back to the predecessor company for group relief for carried-forward losses. Group relief for carried-forward losses is only restricted when the claimant company is another company, other than the predecessor company (s676EC(1)(c)).

The restrictions continue to apply in certain circumstances where the successor company transfers the trade to another company.

The restrictions apply only to losses of the transferred trade. Losses of other trades or of other parts of either the predecessor or the successor company’s business are not restricted by Chapter 2E.

The definitions of transfer of trade, predecessor and successor used in Chapter 2E, Part 14 are the same as those in Chapter 1, Part 22 (CTA10/676EE, S940B).