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HMRC internal manual

Property Income Manual

Losses for CT: Restriction following a change in company ownership

Reform of corporation tax loss relief

As of 1 April 2017, the relief available for trading losses carried forward has changed. The reform includes new loss buying rules, which apply in circumstances where a change in company ownership occurs on or after 1 April 2017. Guidance has been published in draft.

Part 14 CTA10

The ‘loss buying’ rules which operate to restict the use of carried forward losses in certain circumstances following the change in the ownership of a company are contained in Part 14 of CTA10.

What constitutes a change in the ownership of a company for these purposes is defined by CTA10/S719. Detailed guidance on this can be found in the Company Taxation Manual at CTM06340

Company with investment business

A company with investment business is a company whose business consists wholly or partly of making investments (CTA09/S1218B). 

The rules which apply to companies with investment business are contained in Chapters 3 and 4 of Part 14 CTA10. For detailed guidance on these rules, please see the Company Taxation Manual starting at CTM08700.

Company without investment business with property business losses

Where there is a change in ownership of a company carrying on a property business which is not, and the company is not a company with investment business, the rules in Chapter 5 of Part 14 CTA10 apply:

  • CTA10/S704 applies where the company carries on a UK property business

  • CTA10/S705 applies where the company carries on an overseas property business

Except where otherwise noted, the rules outlined below apply equally to either a UK or an overseas property business.

Conditions

Under these rules, losses are restricted where either condition A or B is met:

Condition A is that within any period in of 3 years in which the change of ownership occurs, there is a major change in the nature or conduct of the trade or property business carried on by the company.

This 3 year period can therefore be:

  • a 3 year period beginning 3 years before the change of ownership occurs, ending with the day of the change in ownership; or

  • a 3 year period beginning the day of the change in ownership and end 3 years later; or

  • any 3 year period in between.

A “major change in the nature of a trade or property business” includes (but is not limited to):

  • a major change in the type of property dealt in, or services or facilities provided in, the trade or business, or

  • a major change in customers, outlets or markets of the trade or business.

Note that under Condition A, a major change in only the nature of a trade carried on by the company can still cause these rules to apply to the losses of the property business even if the nature of the property business itself is unchanged.

For further detailed guidance on what constitutes a major change, please see the Company Taxation Manual at CTM06370. Although this refers to trades, the principles apply similarly to property businesses.

Condition B is that the change of ownership occurs any time after the scale of the the activities in a trade or property business carried on by the company has become small or negligible and before any significant revival of the trade or business.

For further detailed guidance on small and negligible activity and significant revival, please see the Company Taxation Manual at CTM06370. Although this refers to trades, the principles apply similarly to property businesses.

Restriction

Where Condition A or B is met, there is a restriction on the losses which may be:

  • set against total profits, surrendered as group relief and brought or carried forward in a UK property business,

  • brought or carried forward in an overseas property business.

The accounting period in which the change in ownership occurs is treated as two separate notional accounting periods, the first ending with the change and the second consisting of the remainder of the period. The profits or losses of the actual accounting period are then apportioned on a time basis according to the respective lengths of the notional periods, or if that method would give an unjust or unreasonable result, a more just an reasonable method.

Relief for losses must then be considered for each notional period separately. No loss made in an accounting period beginning before the change in ownership may then be carried forward to an accounting period ending after the change in ownership, or for UK property businesses, treated as a loss made in that period under CTA10/S62(5)(b).