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HMRC internal manual

Corporate Intangibles Research and Development Manual

HM Revenue & Customs
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Intangible assets: avoidance: change of ownership of company


Outline - loss buying

This provisions in this paragraph adapt the CT ‘loss-buying’ rules to enable them to apply to taxable credits and deductible debits arising under Schedule 29.

The credits and debits affected are those that fall into the ‘non-trading’ category (see CIRD13530). Where credits and debits arising under Schedule 29 are taken into account for CT in computing income from a wider source (a trade or property business) no adaptation of the loss buying rules described in CTM06300 onwards (trades) and PIM4250 (property business) is necessary.

The provisions in paragraph 4 limit the extent to which:

  • reliefs such as management expenses arising before the change of ownership of a company can be set against a taxable credit arising on the realisation of intangible assets afterwards,
  • non-trading debits or non-trading losses arising before the change of ownership of a company can be set against profits (of any description) arising afterwards.

Non-trading credit on realisation of asset following change of ownership of a company

In essence, section ICTA88/S768C counters schemes whereby the new owners of an investment company arrange for an asset, shortly to generate a capital gain on disposal, to be transferred to it under cover of the no gain/no loss CG rules for intra-group transfers in order to set unused management expenses against the gain.

The amendment to section 768C (by adding a new subsection 13) ensures that its provisions also apply where:

  • the asset transferred to the investment company in question is goodwill or an intangible fixed asset which it acquires on ‘tax-neutral’ terms under FA02/SCH29/PARA55 (see CIRD40200), and
  • the subsequent disposal of that asset gives rise to a non-trading credit (CIRD13530).

CTM08880 onwards describes the circumstances where section 768C applies and the restriction in management expenses against the subsequent capital gain. The method of restricting the expenses is the same in the case where it is a non-trading credit under Schedule 29 that arises rather than a capital gain.

Non-trading debits and losses on change of ownership of a company

Paragraph 4 also inserts a new section ICTA88/S768E. This addresses the situation where an investment company whose ownership changes has an unused “non-trading loss” under Schedule 29, referable to periods prior to the change of ownership. The conditions that trigger the operation of the section are the same as those which trigger parallel rules in respect of surplus management expenses (CTM08700 onwards) and Schedule A losses (PIM4250).

Allocation to periods before and after change of ownership

Paragraph 4 also makes additions to the rules in ICTA88/SCH28A, which allocate sums within that Schedule to the periods before and after the change of ownership.

In summary:

  • non-trading losses under Schedule 29 carried forward from earlier periods are allocated to that part of the accounting period which falls before the change of ownership,
  • the allocation of non-trading debits and credits within Schedule 29 arising in an accounting period which straddles the date on which the change of ownership takes place is to proceed by reference to the time when sums would be recognised under UK GAAP (as defined in CIRD30020).