Corporation Tax Act 2010

Chapter 4U.K.Company with investment business: restrictions on relief: asset transferred within group

IntroductionU.K.

692Introduction to ChapterU.K.

(1)This Chapter applies if—

(a)there is a change in the ownership of a company with investment business (“the company”), and

[F1(b)the following are met—

• condition 1, and

• conditions 2 and 3 or condition 4.]

(2)Condition 1 is that none of conditions A to C in section 677 is met.

(3)Condition 2 is that after the change in ownership the company acquires an asset from another company in circumstances such that—

(a)section 171(1) of TCGA 1992 (no gain/no loss on transfer within group), or

(b)section 775 of CTA 2009 (tax-neutral transfer within group),

applies to the acquisition.

(4)Condition 3 is that—

(a)in a case within subsection (3)(a), a chargeable gain accrues to the company on a disposal of the asset within the period of [F25] years beginning with the change in ownership, or

(b)in a case within subsection (3)(b), there is a non-trading chargeable realisation gain on the realisation of the asset within that period.

[F3(4A)Condition 4 is that a chargeable gain on a disposal of an asset within the period of 5 years beginning immediately after the change in ownership (or an amount of such a gain) is treated as accruing to the company by virtue of an election under section 171A of TCGA 1992 (election to reallocate gain or loss to another member of the group).

(Accordingly, references in this Chapter to the accrual of a relevant gain are to be read in the light of section 171B(2) and (3) of TCGA 1992.)]

(5)For the purposes of subsection (4), an asset (P) acquired by the company as mentioned in subsection (3) is treated as the same as an asset (Q) owned at a later time by the company if the value of Q is derived in whole or in part from P.

(6)In particular, P is treated as the same as Q for those purposes if—

(a)Q is a freehold,

(b)P was a leasehold, and

(c)the lessee has acquired the reversion.

(7)In this Chapter—

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

• “the company” has the same meaning as in this section,

• “non-trading chargeable realisation gain” means a chargeable realisation gain (within the meaning of Part 8 of CTA 2009 (intangible fixed assets)) which is a non-trading credit for the purposes of that Part (see section 746 of that Act),

• “realisation” has the meaning given by section 734 of CTA 2009, and

• “the relevant gain” means the gain [F4(or amount of a gain) within subsection (4)(a) or (b) or (4A)] .

693Meaning of “amount of profits which represents a relevant gain”U.K.

(1)In this Chapter, the amount of any profits which represents a relevant gain is found by comparing—

(a)the amount (“Y”) of the relevant gain, with

(b)the amount (“Z”) which is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains for the accounting period concerned.

(2)If Y does not exceed Z, the amount of the profits which represents the relevant gain equals Y.

(3)If Y exceeds Z, the amount of those profits equals Z.

694Meaning of “the relevant provisions”U.K.

In this Chapter “the relevant provisions” means—

(a)section 8(1) of, and Schedule 7A to, TCGA 1992 (amounts included in respect of chargeable gains in total profits), or

(b)Chapter 6 of Part 8 of CTA 2009 (intangible fixed assets: how credits and debits are given effect).

Notional split of accounting period in which change in ownership occursU.K.

695Notional split of accounting period in which change in ownership occursU.K.

(1)This section applies for the purposes of this Chapter.

(2)The accounting period in which the change in ownership occurs (“the actual accounting period”) is treated as two separate accounting periods (“notional accounting periods”), the first ending with the change and the second consisting of the remainder of the period.

(3)The amounts for the actual accounting period in column 1 of the table in section 702(2) are apportioned to the two notional accounting periods in accordance with section 702.

(4)In this Chapter “the actual accounting period” and “notional accounting periods” have the same meaning as in this section.

Restrictions on reliefU.K.

696Restriction on debits to be brought into accountU.K.

(1)This section has effect for the purpose of restricting the debits to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of the company's loan relationships.

(2)But this section applies only if, in accordance with the relevant provisions and section 702, an amount is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains in the total profits of the accounting period of the company in which the relevant gain accrues or arises.

(3)The debits to be brought into account for the purposes of Part 5 of CTA 2009 for—

(a)the accounting period beginning immediately after the change in ownership, or

(b)any subsequent accounting period,

do not include relevant non-trading debits so far as the amount of those debits exceeds the modified total profits of the accounting period.

(4)In subsection (3) “the modified total profits of the accounting period” means the total profits of that period—

(a)less, if that period is the period in which the relevant gain accrues or arises, an amount equal to so much of those profits as represents the relevant gain, and

(b)after deducting any amounts which can be relieved against the profits, other than an amount falling to be deducted under section 461 [F5or 463B(1)(a)] of CTA 2009 (claim to set off deficit against other profits for the deficit period).

(5)If, as a result of subsection (3), a debit is to any extent not brought into account for an accounting period, that debit may (to that extent) be brought into account for the next accounting period, but this is subject to the application of subsections (3) and (4) to that next accounting period.

(6)For the meaning of “relevant non-trading debit”, see section 730.

697Restriction on the carry forward of non-trading deficit from loan relationshipsU.K.

(1)This section has effect for the purpose of restricting the carry forward of a non-trading deficit from the company's loan relationships under Part 5 of CTA 2009 (loan relationships).

(2)But this section applies only if, in accordance with the relevant provisions and section 702, an amount is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains in the total profits of the accounting period of the company in which the relevant gain accrues or arises.

(3)Subsection (4) applies if the non-trading deficit in column 1 of row 5 of the table in section 702(2) is apportioned in accordance with section 702(2) to the first notional accounting period.

(4)None of that non-trading deficit may be carried forward to—

(a)the accounting period beginning immediately after the change in ownership, or

(b)any subsequent accounting period.

698Restriction on relief for non-trading loss on intangible fixed assetsU.K.

(1)This section has effect for the purpose of restricting relief under section 753 of CTA 2009 (treatment of non-trading losses) in respect of a non-trading loss on intangible fixed assets.

(2)But this section applies only if, in accordance with the relevant provisions and section 702, an amount is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains in the total profits of the accounting period of the company (“the relevant period”) in which the relevant gain accrues or arises.

(3)Relief under section 753 of CTA 2009 against the total profits of the same accounting period is available only in relation to each of the notional accounting periods considered separately.

(4)Subsection (5) applies if a non-trading loss on intangible fixed assets for an accounting period beginning before the change in ownership is carried forward under section 753(3) of that Act to an accounting period ending after the change in ownership.

(5)The non-trading loss may not be used to give relief under section 753 of that Act in respect of so much of the total profits of the relevant period as represents the relevant gain.

699Restrictions on the deduction of expenses of managementU.K.

(1)This section has effect for the purpose of restricting deductions for expenses of management.

(2)Any amounts which—

(a)are, or are treated as, expenses of management referable to the actual accounting period, and

(b)are apportioned to either of the two notional accounting periods in accordance with section 702,

are treated for the purposes of Chapter 2 of Part 16 of CTA 2009 (companies with investment business) as expenses of management referable to that notional accounting period.

(3)Any allowances which are apportioned to either of the notional accounting periods in accordance with section 702 are treated for the purposes of [F6sections 253 and 270HE] of CAA 2001 and section 1233 of CTA 2009 (companies with investment business: excess capital allowances) as falling to be made in that notional accounting period.

(4)Subsection (5) applies if, in accordance with the relevant provisions and section 702, an amount is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains in the total profits of the accounting period of the company in which the relevant gain accrues or arises.

(5)In calculating the taxable total profits of the accounting period of the company in which the relevant gain accrues or arises, no deduction may be made under section 1219 of CTA 2009 (expenses of management of a company's investment business) by reference to—

(a)expenses of management deductible for an accounting period beginning before the change in ownership, or

(b)allowances falling to be made for such an accounting period,

from so much of the total profits of the accounting period as represents the relevant gain.

700Disallowance of UK property business lossesU.K.

(1)This section has effect for the purpose of restricting relief under sections 62 and 63 for a loss made by the company in a UK property business before the change in ownership.

(2)But this section applies only if, in accordance with the relevant provisions and section 702, an amount is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains in the total profits of the accounting period of the company in which the relevant gain accrues or arises.

(3)Relief under section 62(3) is available only in relation to each of the notional accounting periods considered separately.

(4)A loss made in an accounting period beginning before the change in ownership may not be deducted, as a result of section 62(5) or 63(3), from so much of the profits of an accounting period ending after the change in ownership as represents the relevant gain.

701Disallowance of overseas property business lossesU.K.

(1)This section has effect for the purpose of restricting relief under section 66 for a loss made by the company in an overseas property business before the change in ownership.

(2)But this section applies only if, in accordance with the relevant provisions and section 702, an amount is included in respect of chargeable gains or, as the case may be, non-trading chargeable realisation gains in the total profits of the accounting period of the company in which the relevant gain accrues or arises.

(3)A loss in the business made in an accounting period beginning before the change in ownership may not be used under section 66(3) to reduce so much of the profits of the business of an accounting period ending after the change in ownership as represents the relevant gain.

Apportionment of amountsU.K.

702Apportionment of amountsU.K.

(1)This section applies for the purposes of this Chapter, but subsection (2) is subject to subsection (3).

(2)Any amount for the actual accounting period in column 1 of the following table is to be apportioned to the two notional accounting periods in accordance with the corresponding method of apportionment in column 2 of the table.

(3)If any method of apportionment in column 2 of rows 2 to 11 of the table in subsection (2) would work unjustly or unreasonably in any case, such other method is to be used as is just and reasonable.

(4)For the meaning of certain expressions used in this section, see section 703.

703Meaning of certain expressions in section 702U.K.

(1)This section applies for the purposes of the table in section 702(2).

(2)For the purposes of column 1 of row 2 of the table, the amount for the actual accounting period of any adjusted non-trading profits from the company's loan relationships is the amount which would be the amount of the profits from those relationships chargeable under section 299 of CTA 2009 (charge to tax on non-trading profits) if, in calculating that amount, amounts for that period within column 1 of row 4 or 5 of the table were disregarded.

(3)For the purposes of column 1 of row 3 of the table, the amount for the actual accounting period of any adjusted non-trading deficit from the company's loan relationships is the amount which would be the amount of the non-trading deficit from those relationships if, in calculating that amount, amounts for that period within column 1 of row 4 or 5 of the table were disregarded.

(4)Condition A is that—

(a)the amount in column 1 of row 4 of the table is determined on an amortised cost basis of accounting, and

(b)none of the following provisions applies—

(i)section 373 of CTA 2009 (late interest treated as not accruing until paid in some cases),

(ii)section 407 of that Act (postponement until redemption of debits for connected companies' deeply discounted securities), or

(iii)section 409 of that Act (postponement until redemption of debits for close companies' deeply discounted securities).

(5)Condition B is that—

(a)the amount in column 1 of row 4 of the table is determined on an amortised cost basis of accounting, and

(b)any of the provisions mentioned in subsection (4)(b) applies.

(6)The expenses of management mentioned in column 1 of row 8 of the table do not include any expenses for which a deduction under section 1219 of CTA 2009 (expenses of management of a company's investment business) would be disallowed because of subsection (3)(b) of that section.