UK and International Tax news

Proposed Restrictions On Carry Forward Of Corporate Capital Losses

Tuesday 30th July 2019

The next Finance Bill 2019/20 will include proposals to restrict the carry forward and utilisation of capital losses incurred by companies with effect from April 2020.

In the 2018 Budget, the Chancellor announced the Government’s intention to reform the rules for the relief of corporate capital losses from 1 April 2020 by introducing a corporate capital loss restriction (CCLR). This will extend the corporate income loss restriction (CILR) introduced in April 2017 to include carried-forward capital losses and ensure that, in general, large companies will still pay tax when making substantial gains.

Draft clauses for the 2019/20 Finance Bill include a new CCLR which will limit the amount of capital gains realised by companies that can be relieved by carried-forward capital losses will be limited to 50% from 1 April 2020. The deductions allowance of £5m per group per year that was introduced in 2017 under the CILR rules will also be available to cover capital gains that can be offset with carried-forward capital losses.

Accounting periods straddling 1 April 2020 will be split with the 50% restriction applying only to gains arising in the period from 1 April 2020. There will be no restriction applied to capital losses arising in the straddling period where these can offset capital gains arising in either of the notional periods.

For brought forward group/connected party capital losses or pre-entry capital losses which could otherwise have been offset but for the restriction, a claim can be made to deduct these losses without restriction in preference to capital losses that arose in the period which would now be restricted.

For dormant companies and companies which are members of dormant groups which have a one-day accounting period purely as a result of chargeable gains, the full £5m deductions allowance will be available and not restricted to 1/365th of £5m, which would have resulted in companies with relatively small gains facing a loss restriction.

Companies with multiple one-day accounting periods in a financial year will be able to offset capital losses against capital gains, arising in that financial year, without restriction.

The Government expects an Exchequer impact of around +£140m per year from 2020/21.

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