Corporate capital loss restriction (CCLR)
The government’s intention to restrict companies’ use of carried-forward capital losses to 50% of capital gains for accounting periods starting on or after 1 April 2020 was first announced at Budget 2018. It subsequently published a consultation paper on Budget day and the consultation period closed on 25 January 2019.
Responses to the consultation and draft legislation to be included in Finance Bill 2019-20 were published today (11 July 2019). The measures are largely as expected following the original announcement in Budget 2018. In overview, for accounting periods starting on or after 1 April 2020, companies with carried forward capital losses will be able use these to offset no more than half of capital gains made in future years. This is in line with the rules relating to corporate income loss relief which were introduced with effect from 1 April 2017. There will be a group deductions allowance of £5 million, shared with the corporate income loss relief.
The government has taken into account some but not all of the issues raised by respondents to the consultation. The changes it has made address some finer technical points and ensure that the proposed changes to the rules will not affect individuals. The changes it has made include rules to ensure that the restriction will not apply to the property rental business of Real Estate Investment Trusts (REITs). Respondents had expressed concern that without any express provision, the proposed rules would have affected individual investors in REITs and as such would be contrary to the policy intention. Other provisions introduced as a result of the responses to the consultation include the ability to prioritise carried-forward connected party losses and streamed pre-entry losses.
An antiforestalling measure applies to accounting periods ending on or after 29 October 2018 (the date of Budget day 2018) and 1 April 2020. It applies where a company enters into arrangements with a main purpose of securing a tax advantage in respect of the CCLR before it has effect. Where the provision applies, it has the effect of restricting the amount of carried-forward losses to no more than 50% of the qualifying chargeable gains. It also ensures that no deductions allowance is available. In response to concerns raised by respondents to the consultation, the government states that it considers that the antiforestalling provisions will not capture genuine commercial transactions and it has not taken steps to further limit the measure.