Carried-forward losses restriction

Produced by a Tolley Corporation Tax expert

Corporation Tax

Guidance

Overview of the carried-forward loss restriction

An important restriction in the use of losses carried forward was introduced by Finance (No 2) Act 2017. Subject to a de minimis of £5m (known as the deductions allowance), most carried-forward losses are restricted to a set-off which is limited to 50% of profits.

The rules restricting losses apply to accounting periods beginning on or after 1 April 2017, but with straddling provisions as discussed below. It is important to note that the 50% restriction also applies to trading and certain other income losses carried forward from periods before 1 April 2017.

For further details including the increase in the deductions allowance for the reversal of an onerous lease and also for insolvent companies see Simon’s Taxes D1.1108BA.

HMRC guidance can be found at CTM05010 onwards.

Extension of the restriction to capital losses from 1 April 2020

For accounting periods beginning on or after 1 April 2020, with transitional rules (see below) for periods straddling that date, the use of carried-forward capital losses is restricted, in a similar way to income losses.

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Carried-forward losses restriction

Carried-forward losses restriction