The Chancellor announced a major reform of corporate capital losses from 1 April 2020. This will extend the corporate income loss restriction introduced in April 2017 to include carried-forward capital losses, which he said would help to create a more modern loss relief regime in the UK.

Companies making capital gains will only be able to use carried-forward capital losses to offset up to 50% of those gains. To ensure that the restriction only impacts on companies making substantial gains, the government proposes to extend the allowance of £5m, provided for the corporate income loss restriction (CILR) to capital losses as well.

The Treasury says this will ensure that over 99% of companies remain financially unaffected by both restrictions. The consultation document contains details of actions the government considers are necessary to ensure that the reforms to capital losses are robust against tax avoidance. These include an anti-forestalling measure that will have retrospective effect from the date this measure was announced at Budget 2018.

The consultation document states it is intended to mirror as far as possible the model used in the 2017 loss reform to calculate the restriction which should be applied against capital gains. Therefore aspects such as definitions of groups and the methodology for the allocation of deductions allowance between group members will follow the CILR model.

The government intends that the reforms to capital losses will apply to capital gains that arise on or after 1 April 2020 such that the restriction will apply to losses carried-forward from the last accounting period ending before that date. Where a company has an accounting period that straddles 1 April 2020 then transitional arrangements will apply.

A targeted anti-avoidance rule will counter arrangements that seek to exploit the deductions allowance going forward, such as where there is manipulation of a group structure to maximise the amount of the annual allowance due. These will be in line with the CILR targeted anti-avoidance rules and will apply to arrangements with a main purpose of obtaining a relevant tax advantage.

Treasury analysis indicates the reforms will bring in an additional £565m over the next five years.

The consultation closes on 25 January 2019.

Corporate Capital Loss Restriction - consultation on delivery is here

Report by Pat Sweet