FB 2019/20 – April 2020 introduction of the corporate capital loss restriction

Wed 17 Jul 2019

Draft legislation has been issued to bring carried forward capital losses within the new corporate loss regime for the UK.  This means that in working out the amount of corporate profits against which brought forward losses can be offset, the £5m deduction allowance will from 1 April 2020, need to take account of capital gains.

More details on the corporate capital loss restriction

Where a company has a one day accounting period as a result of UK capital gains, and it has (and members of its group have) no income profits subject to UK corporation tax, then it will be allowed up to the full £5m deductions allowance (this will not be time apportioned for capital gains purposes for accounting periods straddling 1 April 2020).  A company may have a one day accounting period for corporate capital gains if it is a non-UK tax resident company that makes a disposal of an interest in UK land or a UK land-rich entity.

The restriction on the use of carried forward corporate capital losses will not apply to REITs in respect of losses offset against profits of the property rental business, nor for Basic Life Assurance and General Annuity Businesses.

Anti-forestalling applies from 29 October 2018, and there is targeted anti-avoidance.  Transitional rules will apply to treat the period up to 1 April 2020 as separate from the period from that date.

In contrast with the initial proposals the corporate capital loss rules will be fully integrated within the corporate income loss rules, but capital losses will still only be off-settable against corporate capital gains/non-trade profits.

The Government is still considering whether it is appropriate to include specific provision for insolvent companies and will provide an update on this issue in due course.

The Government will allow companies to use carried-forward connected party losses in place of capital losses arising in the accounting period (so far as such connected party losses could have been used to offset connected party gains in the same period had the in-year capital losses not been present). The Government will also allow companies to use carried-forward streamed losses in place of capital losses arising in the accounting period so far as appropriate gains are available to be offset by those losses in the same period.

For a further discussion of the changes on corporate capital loss rules, please get in touch with a member of the Mazars corporate tax team.