Restriction on non-trading losses on change in ownership

Produced by Tolley

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Restriction on non-trading losses on change in ownership
  • Meaning of change in ownership
  • Meaning of significant increase in capital
  • Change in ownership on or after 1 April 2014
  • Change in ownership prior to 1 April 2014
  • Restrictions on non-trading losses
  • Carried-forward losses and change in ownership
  • Further anti-avoidance provisions post 1 April 2017
  • TAAR on loss-related tax advantages
  • Assets transferred within a group

Restriction on non-trading losses on change in ownership

This guidance note provides details of the potential restriction that may arise in respect of certain losses on a change in ownership of a company with investment business. The restrictions are very similar to those which apply in respect of trading losses. See the Trading losses and anti-avoidance guidance note for more information.

There are various conditions relating to the change in ownership of an investment company which, if met, will result in potential restrictions to the excess management expenses, qualifying charitable donations and non-trading loan relationship deficits that have arisen prior to the change. The purpose of this legislation is to ensure that companies are not ‘traded’ just so a tax advantage can be obtained, such as accessing a company’s tax losses.

Please refer to the Excess management expenses and Non-trading deficits on loan relationships guidance notes for general details about the utilisation of these types of losses.

The conditions which lead to the potential restrictions are that there is a change in ownership of a company with an investment business and one of the following applies:

  1. A)

    after the change in ownership there is a significant increase in the amount of the company’s capital

  2. B)

    in any period of eight years beginning three years before the change in ownership there is a major change in the nature or conduct of the company’s business. This is only where the change in ownership and the major change in the nature of the business took place on or after 1 April 2017. For changes prior to 1 April 2017, this rule used to be three years before and after the change in ownership.

  3. C)

    the change in ownership occurs at any time after the scale of the activities carried on by the company has become small or negligible and before any significant reinvestment occurs

CTA 2010, s 677

Meaning of change in ownership

There is a change of ownership for this purpose in the following circumstances:

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