CTM06305 - Corporation Tax: loss-buying: introduction
CTA10/S673
CTA10/S673 counters ‘loss-buying’, where a person buys a trading company wholly or partly for its unused trading losses rather than solely for the inherent value of its trade or assets. The new owner usually introduces new activity into the company, but in such a way that it would be difficult to persuade a Tribunal that one trade had ceased and a new one commenced. Thus, but for CTA10/S673, the company would keep its entitlement to relief for losses brought forward. CTA10/S673 applies where either:
- within any specified period there is both:
or
- there is a change in ownership of a company at a time when the scale of its trading activities has become small or negligible (CTM06390).
Where the conditions of CTA10/S673 are satisfied all the company’s unused CTA10/S45 carried- forward trading losses as at the date of the change of ownership are cancelled (CTM06420).
For accounting periods ending before 1 April 2017, the specified period is 3 years beginning no more than 3 years before the change in ownership.
For accounting periods beginning on or after 1 April 2017, the specified period is 5 years beginning no more than 3 years before the change in ownership occurs. This longer period only applied however where both the change in ownership and the major change in the nature or conduct of the trade occur on or after 1 April 2017 (F(No2)A 2017/Sch4/Para 72).
Where an accounting period begins before and ends after 1 April 2017, it is divided so that the period that falls before 1 April 2017 and the period that falls on or after that date are treated as two separate accounting periods (F(No2)A 2017/Sch4/Para 190). See CTM04880.
CTA10/S719 sets out the rules governing change in ownership of a company - see CTM06340. Reliefs other than trading losses may be restricted.