OT68040 - Transferable tax history - Onward sales - Default treatment

The treatment below applies where an unused transferred profit amount from the original election is treated as being part of the eligible ring fence profits of the original purchaser for the purposes of the subsequent TTH election. However, if they so wish, the original purchaser and the new purchaser may opt out of this treatment (see OT68050).

If no opt-out election is made, then original TTH amounts being treated as eligible ring fence profits of the original purchaser are transferred before any of the original purchaser’s own eligible ring fence profits. The original TTH amounts are transferred on a last-in first-out basis, up to the amount of the TTH cap. The TTH cap is recalculated on the onward transfer and so may be different to the cap calculated for the original election.

If, and only if, the cap is higher than the total of the original TTH amounts being treated as eligible ring fence profits of the original purchaser, the original purchaser’s own eligible ring fence profits may then be transferred, subject to agreement between the original and new purchaser.

Example

Company A sold its 80% interest in field X to company B on 1 January 2020, with TTH of £20m in 2017 and £30m in 2016. B had made profits of its own of £10m in each of those years. It made £5m profit every year from 2018-2023. The total net profit amount during B’s ownership was £25m.

On 1 January 2024 B sold the half of its interest in field X to company C. B and C make a TTH election, and the default treatment for onward sales applies. Because the new TTH asset is only 50% of the original TTH asset, FA19\Sch15\Para83(4)(b) applies. Consequently, only 50% of the original TTH amounts from the first TTH election are to be treated as being the eligible ring fence profits of company B. Thus, £10m of the original TTH amount for 2017 and £15m for 2016 are treated as eligible ring fence profits for B.

If the new TTH cap for the second election is calculated as £30m, the priority rules in FA19\Sch15\Para86 apply. This means that the amounts eligible to be transferred will be, firstly £10m from 2017 (50% of the original TTH amount for that year), then £15m from 2016 (50% of the original TTH amount for that year) and finally £5m from 2021.

When C calculates whether any of its TTH is activated, it will need to take account of the relevant proportion of B’s tracked profits for those accounting periods where B owned the interest that was transferred to C. Therefore, C will need to include 50% of B’s tracked profits (£12.5m) from when B owned the interest, when calculating whether any TTH is activated.