(Draft) tax information and impact note: Amending The Mutual Societies (Transfers of Business) (Tax) Regulations 2009
Updated 24 April 2024
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Who is likely to be affected
Building societies transferring business on or after 1 January 2023.
General description of the measure
This measure amends the existing regulations relating to the use of trade losses for Corporation Tax (CT) purposes, in the event of transfers of business by building societies.
The rules governing relief for Corporation Tax losses were amended in 2017 with a number of changes, referred to collectively as CT loss reform. This measure updates the existing regulations to reflect changes made to the use of trade losses incurred on or after 1 April 2017. This includes greater flexibility for the offset of post-1 April 2017 trade losses, subject to some restrictions in the first 5 years after the transfer of business.
Amendments are made to the existing regulations to refer to the relevant provisions in the Corporation Tax Act 2010 (CTA 2010) relating to the transfer of a trade.
Policy objective
The existing regulations on transfers of business by building societies were introduced in 2009 to remove tax barriers and ensure tax neutrality for certain transfers made under the Building Societies Act 1986. This included rules in relation to the use of carried forward trade losses for Corporation Tax purposes.
This measure will ensure that the rules relating to the use of trade losses on certain transfers of business by building societies reflect the changes introduced under CT loss reform. This will restore the level playing field for post-1 April 2017 loss relief in equivalent situations involving transfers between companies including banks.
Background to the measure
The Mutual Societies (Transfers of Business) (Tax) Regulations 2009 make provision for the tax consequences of transfers of business by mutual societies, including in respect of the use of losses on the transfer of a trade. The powers used to make the original regulations, and which will be used in this measure, were introduced by section 124 of Finance Act 2009.
In 2017, CT loss reform introduced 2 major changes in CTA 2010 to the use of losses, enabling greater flexibility for offset of post-1 April 2017 losses as well as a restriction on the amount of carried forward losses which can be offset in any one accounting period. Changes included amendments to the provisions in relation to transfers of trade, such as those at Part 14 and Part 22 of CTA 2010.
This measure will update the current regulations to reflect changes made as part of CT loss reform in connection with transfers of trade and the use of losses.
This measure will apply retrospectively to transfers occurring from 1 January 2023. This will ensure that those transfers which have been identified as being undertaken before the regulations come into force are not disadvantaged.
[Outcome of the consultation to be inserted.]
Detailed proposal
Operative date
The measure comes into force 21 days after laying and has effect in relation to transfers of business by building societies taking place on or after 1 January 2023. The measure will not increase a person’s liability to tax save in relation to anything done or occurring after the date the measure comes into force.
Current law
Regulation 4 of The Mutual Societies (Transfers of Business) (Tax) Regulations 2009 (SI 2009/2971) sets out how the rules for the use of trade losses operate on certain transfers of business by building societies.
Proposed revisions
This measure will amend SI 2009/2971 by omitting the existing provisions in paragraphs 3 to 18 of regulation 4 and introducing paragraphs 19 and 20.
This measure will apply a modified version of Chapter 1 of Part 22 of CTA 2010 to relevant transfers (within the meaning of regulation 3 of SI 2009/2971) by building societies, if the relevant transfer does not already fall in Chapter 1. The effect of this is to modify the treatment of capital allowances and losses of the trade transferred by the building society.
This measure will also apply a modified version of Chapter 2E of Part 14 of CTA 2010 to relevant transfers by building societies. This will restrict the use of the carried forward trade losses for the first 5 years after the relevant transfer.
Summary of impacts
Exchequer impact (£m)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| nil | nil | nil | nil | nil | nil |
The measure is expected to have a nil impact on the Exchequer.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure has no impact on individuals as it only affects building societies. This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on a very small number of building societies potentially amalgamating or transferring their business. One-off costs will include familiarisation with the amended rules. There are not expected to be any continuing costs.
Customer experience is expected to stay broadly the same because the changes made by these regulations will not alter how building societies interact with HMRC.
This measure is not expected to impact on civil society organisations.
Operational impact (£ million) (HMRC or other)
There are no financial consequences for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please email the Financial Services Policy Team.
Declaration
[Economic Secretary to the Treasury] has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.