Transferable Tax History: Details of what can be included as TTH
The tax history that can be transferred from the seller is the ring fence CT (RFCT) profits (and the tax paid on those profits) and as a consequence the associated final taxable adjusted ring fence profits (ARFP) for Supplementary Charge (and the tax paid on those profits).
The initial step is to identify the “reference accounting period” of the seller.
Reference accounting period - this is, at the effective date of the election (the date of the completion of the sale), the seller’s most recent “qualifying accounting period” in respect of which the amendment period (a period of 12 months beginning with the filing date for the accounting period) has ended.
Qualifying accounting period – this is an accounting period (AP) that has “eligible” ring fence profits.
Eligible – Ring fence profits for an accounting period are eligible if:
- CT has been charged at the main ring fence profits rate (and they are not subject to marginal relief)
- At the date of the election the tax due has been paid in full
- The profits are not included in any other TTH election
Example: A seller has an accounting date of 31 December and sells a TTH asset on 1 December 2018 (the effective date of the election). All APs are chargeable at the main ring fence profits rate and all tax has been paid. The reference accounting period is the year ended 31 December 2015.
The seller can include all, or a portion (either by choice or because the “cap” operates - see OT62000), of the RFCT profits for the reference period. Where all the RFCT profits are transferred then all the associated final taxable ARFP subject to Supplementary Charge must also be transferred. The guidance below explains how to apportion the final taxable ARFP for Supplementary Charge where all the RFCT profits are not being transferred.
Other accounting periods
Where all the RFCT profits for the reference accounting period are included in the transfer the seller can include RFCT profits from the next most recent AP with eligible RFCT profits.
No accounting period can be included in a TTH election unless it includes all the eligible RFCT profits from the next following qualifying AP.
Example: Continuing the example above if all eligible RFCT profits for the AP ended 31 December 2015 are included in the TTH election then eligible RFCT profits from 31 December 2014 can also be included. If all eligible RFCT profits from the 2014 AP are included then the eligible RFCT profits from the AP ended 31 December 2013 can be included, and so on.
Where one of the accounting periods does not have eligible ring fence profits, for example because marginal rates apply, then it is possible to jump to the next period that has eligible ring fence profits. So again, using this example, if there were no eligible ring fence profits for 31 December 2014 the seller can still include eligible RFCT profits from the AP ended 31 December 2013 in the TTH election.
Apportionment of adjusted ring fence profits for Supplementary Charge
In the earliest accounting period included in a TTH election, which may be the reference accounting period, it is possible for the seller to include a portion of the RFCT profits. This can be because the seller chooses to include less than the full amount or because the TTH “cap” has been reached. Where this happens it will be necessary to apportion the associated final taxable ARFP subject to Supplementary Charge. This apportionment should match the proportion of RFCT profits included.
Example: The seller is only transferring RFCT profits from the reference accounting period and is not transferring all of these.
- APE 31 December 2015. RFCT profits £1,000,000. Final taxable ARFP £1,200,000. Only 50% of the RFCT profits are included (£500,000) in the TTH election so it follows that 50% (£600,000) of the final taxable ARFPs must be included.
- APE 31 December 2015. RFCT profits £1,000,000. Final taxable ARFP £800,000. Only 50% of the RFCT profits are included in the election (£500,000) so it follows that 50% (£400,000) of the final taxable ARFPs must be included.