Finance (No. 2) Act 2017

Change in company ownership

77 After Chapter 2B insert—

“CHAPTER 2C Disallowance of group relief for carried-forward losses: general provision

676CA Introduction to Chapter

(1) This Chapter applies if on or after 1 April 2017 there is a change in the ownership of a company (“the transferred company”).

(2) In this Chapter—

• “the change in ownership” means the change in ownership mentioned in subsection (1);

• “the transferred company” has the meaning given by subsection (1).

676CB Restriction on surrender of carried-forward losses

(1) Subsection (3) applies if a company (“the claimant company”) would, (apart from this section), be eligible under Part 5A to make a relevant claim for group relief for carried-forward losses.

(2) For the purposes of this section a claim for group relief for carried-forward losses is a “relevant claim” if it is—

(a) for an accounting period ending after the change in ownership, and

(b) in respect of an amount surrendered by the transferred company or a co-transferred company which is a relevant pre-acquisition loss.

(3) The general rule is that the relief is not available.

(4) The general rule is subject to the exceptions in sections 676CD and 676CE.

(5) For the purposes of this section—

(a) the accounting period of the company mentioned in subsection (2)(b) in which the change in ownership occurs is treated as two separate accounting periods, the first ending with the change and the second consisting of the remainder of the period, and

(b) the profits or losses of the accounting period are apportioned to the two periods.

(6) Any apportionment under subsection (5)(b) is to be made on a time basis according to the respective lengths of the two periods.

(7) But if that method of apportionment would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable.

676CC Cases where consortium condition 1 or 2 was previously met

(1) Subsection (4) applies in relation to a claim for group relief for carried-forward losses by the transferred company if conditions A and B are met.

(2) Condition A is that the claim is—

(a) for an accounting period ending after the change in ownership, and

(b) in respect of a relevant pre-acquisition loss.

(3) Condition B is that consortium condition 1 was met in relation to—

(a) the transferred company (as the company owned by a consortium as mentioned in section 188CF(1)(b)), and

(b) the surrendering company (as the company mentioned in section 188CF(1)(c)),

immediately before the change in ownership (“time T”).

(4) The relief given under section 188CK in respect of the transferred company’s total profits of the claim period may not exceed the relief that would be available on the assumption that the claim is based on consortium condition 1 and the ownership proportion for the purposes of that condition is equal to the lowest of the following proportions—

(a) the proportion of the ordinary share capital of the transferred company that was beneficially owned by the surrendering company at time T,

(b) the proportion of any profits available for distribution to equity holders of the transferred company to which the surrendering company was beneficially entitled at that time,

(c) the proportion of any assets of the transferred company available for distribution to such equity holders on a winding up to which the surrendering company would be beneficially entitled (as determined at that time), and

(d) the proportion of the voting power in the transferred company that was directly possessed by the surrendering company at that time.

(5) Subsection (8) applies in relation to a claim for group relief for carried-forward losses by the transferred company if conditions A and B are met.

(6) Condition A is that the claim is—

(a) for an accounting period ending after the change in ownership, and

(b) in respect of a a relevant pre-acquisition loss.

(7) Condition B is that consortium condition 2 was met in relation to—

(a) the transferred company (as the company owned by a consortium as mentioned in section 188CG(1)(b)), and

(b) the surrendering company (as the company mentioned in section 188CG(1)(c)),

immediately before the change in ownership (“time T”).

(8) The relief given under section 188CK in respect of the transferred company’s total profits of the claim period may not exceed the relief that would be available on the assumption that the claim is based on consortium condition 2 and the ownership proportion for the purposes of that condition is equal to the lowest of the following proportions—

(a) the proportion of the ordinary share capital of the transferred company that was beneficially owned by the link company at time T,

(b) the proportion of any profits available for distribution to equity holders of the transferred company to which the link company was beneficially entitled at that time,

(c) the proportion of any assets of the transferred company available for distribution to such equity holders on a winding up to which the link company would be beneficially entitled (as determined at that time), and

(d) the proportion of the voting power in the transferred company that was directly possessed by the link company at that time.

(9) For the purposes of this section—

(a) the accounting period of the surrendering company mentioned in subsection (3)(b) or (7)(b) (as the case may be) in which the change in ownership occurs is treated as two separate accounting periods, the first ending with the change and the second consisting of the remainder of the period, and

(b) the profits or losses of the accounting period are apportioned to the two periods.

(10) Any apportionment under subsection (9)(b) is to be made on a time basis according to the respective lengths of the two periods.

(11) In this section—

• “the link company” means the company which is the link company (see section 188CG(1)(d)) for the purposes of the meeting of consortium condition 2 as mentioned in subsection (7),

• “the claim period” and “the surrendering company” has the same meaning as in Part 5A (see section 188FD(1)).

(12) Chapter 6 of Part 5 (equity holders and profits or assets available for distribution) applies for the purposes of subsections (4)(b) and (c) and (8)(b) and (c).

676CD Cases where consortium condition 3 or 4 was previously met

(1) If the requirement in subsection (3) is met, section 676CB(3) does not prevent a company from making under section 188CC a claim for group relief for carried-forward losses falling within subsection (2).

(2) A claim falls within this subsection if it is—

(a) for an accounting period (“the claim period”) ending after the change in ownership, and

(b) in relation to an amount surrendered by the transferred company which is a relevant pre-acquisition loss and is attributable to an accounting period of that company specified in the claim (“the specified loss-making period”).

(3) The requirement is that consortium condition 3 or consortium condition 4 is met throughout a period which—

(a) begins before or during the specified loss-making period, and

(b) ends with or after the time when the change in ownership occurs.

(4) For the purposes of a claim by virtue of this section, section 188CC(3) has effect as if requirement 3 were omitted.

676CE Exceptions to restrictions

(1) Nothing in section 676CB(3) or 676CC affects the giving of group relief for carried-forward losses by the making of a deduction under section 188CK(1) from total profits of the claimant company which arise after the 5th anniversary of the end of the accounting period of the transferred company in which the change in ownership occurs.

(2) Nothing in section 676CB(3) or 676CC affects the availability of relief under Part 5A if immediately before the change in ownership the group condition was met in relation to the transferred company and the claimant company.

But see also section 676CF.

(3) If an accounting period of the claimant company begins before, and ends after, the anniversary mentioned in subsection (1), then for the purposes of that subsection—

(a) the accounting period is treated as two separate accounting periods, the first ending with that date and the second consisting of the remainder of the period, and

(b) the profits or losses of the accounting period are apportioned to the two periods.

(4) Any apportionment under subsection (3)(b) is to be made on a time basis according to the respective lengths of the two periods.

(5) But if that method of apportionment would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable.

(6) In this section “the claimant company” has the same meaning as in Part 5A (see section 188FD(1)).

676CF Cases where Chapter 2, 2A or 3 also applies

(1) This section applies if—

(a) Chapter 2 applies in relation to the change in ownership by virtue of condition A in section 673 being met,

(b) Chapter 2A applies in relation to the change in ownership, or

(c) Chapter 3 applies in relation to the change in ownership by virtue of condition B in section 677 being met.

(2) This section also applies if—

(a) the condition in subsection (1)(a) would be met if in subsection (4A) of section 719 (meaning of “change in the ownership of a company”) the reference to Chapter 2C included a reference to Chapter 2, or

(b) the condition in subsection (1)(c) would be met if in subsection (4A) of section 719 the reference to Chapter 2C included a reference to Chapter 3.

(3) Where the company in relation to which the major change mentioned in section 673(4), 676AA(3) or 677(3) has occurred would (apart from this section) be eligible under Part 5A to claim in respect of a relevant pre-acquisition loss group relief for carried-forward losses for an accounting period ending after the change in ownership, no deduction in respect of that loss may be made from affected profits under section 188CK.

See section 676CG for the meaning of “affected profits”.

(4) For the purposes of this section—

(a) the accounting period in which the change in ownership occurs is treated as two separate accounting periods, the first ending with the change and the second consisting of the remainder of the period, and

(b) the profits or losses of the accounting period are apportioned to the two periods.

(5) Any apportionment under subsection (4)(b) is to be made on a time basis according to the respective lengths of the two deemed accounting periods.

(6) But if that method of apportionment would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable.

676CG “Affected profits”

(1) This section has effect for the purposes of section 676CF.

(2) Profits of an accounting period ending after the change in ownership are “affected profits” if and so far as—

(a) they arise before the 5th anniversary of the end of the accounting period of the transferred company in which the change in ownership occurs, and

(b) they can fairly and reasonably be attributed to activities, or other sources of income, as a result of which, or partly as a result of which, the major change mentioned in section 673(4), 676AA(3) or 677(3) (as the case may be) has occurred.

(3) If an accounting period of the company in relation to which the major change mentioned in section 673(4), 676AA(3) or 677(3) has occurred begins before, and ends after, the anniversary mentioned in subsection (2), then for the purposes of that subsection—

(a) the accounting period is treated as two separate accounting periods, the first ending with that date and the second consisting of the remainder of the period, and

(b) the profits or losses of the accounting period are apportioned to the two periods.

(4) Any apportionment under subsection (3)(b) is to be made on a time basis according to the respective lengths of the two deemed accounting periods.

(5) But if that method of apportionment would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable.

676CH “Relevant pre-acquisition loss”

(1) In this Chapter “relevant pre-acquisition loss” means—

(a) a non-trading deficit from loan relationships for an accounting period beginning before the change in ownership carried forward to the surrender period under section 463G(6) of CTA 2009,

(b) a loss on intangible fixed assets so far as it is made up of amounts carried forward to the surrender period under section 753(3) of CTA 2009 from one or more accounting periods beginning before the change in ownership,

(c) expenses carried forward to the surrender period under section 1223 of CTA 2009 (carry forward of expenses of management of investment business) which were first deductible in an accounting period beginning before the change in ownership,

(d) a loss made in an accounting period beginning before the change in ownership and carried forward to the surrender period under section 45A(3) (post- 1 April 2017 trade loss),

(e) a loss made in an accounting period beginning before the change in ownership and carried forward to the surrender period under section 62(5)(b) or 63(3)(a) (loss made in UK property business),

(f) a loss made in an accounting period beginning before the change in ownership and carried forward to the surrender period under section 303B(2) or 303D(3) (post-1 April non-decommissioning losses of ring fence trade),

(g) a BLAGAB trade loss made in an accounting period beginning before the change in ownership and carried forward to the surrender period under section 124A(2) or 124C(3) of FA 2012.

(2) In this section “the surrender period” is to be interpreted in accordance with section 188BB(7).

676CI Interpretation of Chapter

(1) In this Chapter “co-transferred company” means any company which is related to the transferred company both immediately before and immediately after the change in ownership.

(2) For the purposes of this Chapter any two companies (“T”) and (“C”) are “related” to one another at any time when—

(a) the group condition is met in relation to T and C, or

(b) any of consortium conditions 1 to 4 is met in relation to T and C,

(whether on the assumption that T is the claimant company and C is the surrendering company or vice versa).

(3) In this Chapter—

• “consortium condition 1” is to be interpreted in accordance with section 188CF,

• “consortium condition 2” is to be interpreted in accordance with section 188CG,

• “consortium condition 3” is to be interpreted in accordance with section 188CH,

• “consortium condition 4” is to be interpreted in accordance with section 188CI,

• “the group condition” is to be interpreted in accordance with section 188CE.”