Commentary

D6.331 Special situations involving a transfer of trade with common ownership—insolvent predecessor

Corporate tax
Corporate tax | Commentary

D6.331 Special situations involving a transfer of trade with common ownership—insolvent predecessor

Corporate tax | Commentary

D6.331 Special situations involving a transfer of trade with common ownership—insolvent predecessor

In the event of a transfer of a trade between two companies with common ownership, typically the trade losses are automatically transferred with the trade to the successor company (see D6.317).

However, the losses that can be transferred to the successor are restricted where, at the time of the transfer, the predecessor is insolvent with insufficient assets to cover its liabilities and the successor company fails to take over all the liabilities involved1.

The loss available to the successor is reduced by the amount by which the predecessor's liabilities (see below) exceed the value of its assets (see below)2. The value of both the relevant assets and the relevant liabilities are their open market values immediately before the predecessor ceased to carry on the trade3. The former legislative wording4 looked at the value of the assets and liabilities immediately before the transfer of the trade. In Spring Capital Ltd5 the FTT accepted that the gradual closing down of a trade could be a 'process' rather than an overnight event, but it noted that the legislation required the identification of a point in time immediately before the cessation of the trade. This had to be the end of the process; when the trade actually ceased rather than when it started to wind down.

The disallowed amounts do not revert to the predecessor, they are extinguished6. The restriction applies to all losses brought forward which potentially the successor can claim relief

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