Restrictions on the use of losses following company takeover
Restrictions on the use of losses following company takeover

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Restrictions on the use of losses following company takeover
  • Function of the Part 14 rules
  • Scope of the Part 14 rules
  • Major change in the trade
  • Major change in the business—investment companies
  • Major change in the business—post 1 April 2017 losses
  • Property businesses
  • Group relief for carried-forward losses
  • Transferred gains
  • Transfer of a trade
  • more

Part 14 of the Corporation Tax Act 2010 (CTA 2010) (the Part 14 rules) contains anti-avoidance provisions designed to stop a profitable organisation from reducing its corporation tax liability by acquiring a company with accumulated losses (a loss company) and setting these losses off against its own profits. This practice is sometimes known as loss-buying (although this should not be confused with the rules on buying capital losses, for which see Practice Note: Pre-entry capital losses).

There are also rules, introduced by the Finance Act 2013 (FA 2013), that can restrict a company's use of losses that arise after a takeover (the deduction transfer targeted anti avoidance rule (TAAR)).

The Part 14 rules restrict the use of a number of types of carried forward losses and other amounts following a company takeover, including:

  1. trading losses

  2. non-trading loan relationship debits and deficits

  3. non-trading losses on intangible fixed assets

  4. management expenses, and

  5. UK and overseas property business losses

For an explanation of the ways in which a company can use these losses and other amounts to reduce its profits in a situation that does not involve a company takeover, see Practice Notes:

  1. Corporation tax loss relief—trading losses

  2. Taxation of loan relationships — Bringing credits and debits into account—trading vs non-trading profits and losses

  3. How intangible fixed assets are taxed—basic principles—Taxation of non-trading intangible fixed