Section 32: CHANGE IN OWNERSHIP: COMPANY RECONSTRUCTIONS
Summary
1.Section 32 substitutes section 676 in Chapter 2 of Part 14 CTA 2010. The substitute restricts relief available for carried forward of trading losses of a company whether a transfer of a trade (to which Chapter 1 of Part 22 of CTA 2010 applies) occurs before or after a change in ownership of the company.
Details of the Section
2.Subsection 1(1) applies subsection 1(2) where a transfer of a trade (to which Chapter 1 of Part 22 applies) carried on by a company occurs prior to a change in ownership of that company.
3.Subsection 1(2) applies Chapter 2 to restrict relief available by virtue of section 944(3) in Part 22 (for carried forward losses) as if references to the trade and losses sustained by the predecessor company in the transfer of the trade are references to the trade carried on and the loss sustained by the successor company.
4.Subsection 1(3) applies subsection 1 (4) where a transfer of a trade (to which Chapter 1 of Part 22 applies) carried on by a company occurs after a change in ownership of that company.
5.Subsection 1(4) applies Chapter 2 to restrict relief available under section 45 CTA 2010 or by virtue of section 944(3) in Part 22 (for carried forward losses) as if references to the trade carried on by the company include the trade carried on by the successor company, or any successor, to a transfer of the trade..
6.Subsections 1(5)-(7) define predecessor and successor companies.
Background
7.This section is one of three that seek to close existing loopholes in the loss rules.
8.The purpose of Chapter 2 of Part 14 CTA 2010 is to counter loss buying by restricting relief for carried forward corporation tax losses across a change in ownership of a company carrying on a trade. A change in ownership as defined at section 719 of CTA 2010; where, broadly, 51% of the company’s shares change ownership.
9.Relief is restricted if the trade carried on by a company undergoes a major change within 3 years of the change in ownership; or the change in ownership occurs after the company’s activities have become small or negligible.
10.If there has been a major change in the nature or conduct of the trade following a change of ownership, a company cannot use losses arising before the date of the change in ownership to set off against profits arising after the date of the change in ownership.
11.Chapter 1 of Part 22 CTA 2010 allows any trading losses of a trade to be transferred when the trade is transferred from one company to another when those companies are under at least 75% common ownership.
12.Before this amendment, the effect of section 676 was to restrict the carry forward of losses by a successor company where the loss had been sustained by a predecessor if the transfer of the trade occurred before the change in ownership (of the successor).
13.The effect of the new legislation is to extend the restriction of carried forward losses by a company even if the transfer of the trade occurs after the change in ownership (i.e. where the successor company has not itself undergone a change in ownership).
