New relief restriction on corporate capital losses
A reform of the tax regime for corporate capital losses comes into effect from 1 April 2020 restricting relief for capital losses carried forward
The changes are along similar lines to the rules for carried forward income losses introduced in April 2017. However, there will be no increased flexibility in how capital losses can be used – relief will still be given against capital profits only, unlike with the income loss relief changes.
At present a company’s capital losses are netted off against capital gains arising in the same accounting period. Any overall chargeable gain is subject to corporation tax. Where losses exceed gains, the net loss may be carried forward and set against capital gains of future periods. Companies in a group can elect to transfer gains or losses to another group company.
The new restriction will apply to capital gains arising from 1 April 2020. Use of brought forward capital losses will be limited to 50% of the capital gains of the accounting period, However, companies will have unrestricted use of up to £5m capital or income losses each year. Companies will now have to allocate that allowance between capital gains and trading and non-trading income. Groups of companies will have one allowance.
The change does not affect the set-off of capital losses against gains of the same period, which will continue to be unrestricted. Unlike income losses, all carried forward capital losses will be subject to the restriction regardless of when they arose. There will be transitional rules for accounting periods straddling 1 April 2020.
The restriction will only affect larger companies and unincorporated associations, because of the £5m deductions allowance. This effectively means that companies now making substantial capital gains will not be able to relieve them fully by using their historic losses.
Companies will have unrestricted use of up to £5m capital or income losses, to allocate between capital gains and trading and non-trading income.”
