CTM05020 - Corporation tax: restriction on relief for carried-forward losses: restricted losses

CTA10/S269ZB(3), S269ZC(2), S269ZD(3), S269ZBA(2)

The restriction on relief for carried-forward losses at CTA10/PART7ZA applies to a number of different carried-forward losses, listed at CTA10/S269ZB(3), S269ZC(2), S269ZD(3) and, from 1 April 2020, S269ZBA(2). In this guidance, these are referred to as restricted losses or restricted carried-forward losses.

Broadly, the restricted losses comprise:

  • Carried-forward trading losses,
  • Carried-forward non-trading loan relationship deficits (NTLRDs),
  • Carried-forward UK property business losses,
  • Carried-forward management expenses.
  • Carried-forward non-trading losses on intangible fixed assets (NTLIFAs),
  • Group relief for carried-forward losses under CTA10/PART5A.

And from 1 April 2020:

  • Capital losses carried forward in accordance with TCGA92/S2A(1)(b).

Further detail is provided below.

The restriction does not apply to relief for in-year losses (such as group relief under CTA10/Part 5) or for losses carried back from a later accounting period (such as trading losses under CTA10/S37(3)(b)). It only applies to relief for carried-forward losses.

The restricted losses can be divided into:

  • Streamed losses, that are carried forward for deduction from certain types of profit only, specified at s269ZB(3), s269ZC(2), and, from 1 April 2020, s269ZBA(2), and
  • Relevant deductions, specified at CTA10/S269ZD(3). These are amounts carried forward for deduction from the total profits of the company.

Streamed losses

The restriction applies to the following streamed losses:

  • NTLRDs carried forward for deduction from non-trading profits only (CTA09/S457(3) or S463H(5)),
  • Trading losses carried forward for deduction from profits of the same trade only (CTA10/S45(4)(b) or S45B),
  • Deductions from trading profits under CTA10/S303B(4) or S303D(5) for excess carried-forward non-decommissioning losses of a ring fence trade in the oil and gas industry, where certain conditions are met (CTA10/S269ZB(3)(b) and (4)), and
  • From 1 April 2020, capital losses carried forward for deduction from chargeable gains under TCGA92/S2A(1)(b).

Relevant deductions

The restriction applies to the following losses carried forward for deduction from total profits, referred to at s269ZD(3) as the relevant deductions:

  • Trading losses carried forward for deduction from total profits (CTA10/S45A),
  • NTLRDs carried forward for deduction from total profits (CTA09/S463G),
  • Non trading losses on intangible fixed assets carried forward (CTA09/S753(3)),
  • Management expenses carried forward (CTA09/S1219 and CTA09/1223(3)),
  • UK property business losses carried forward (CTA10/S62 or CTA09/S1219 in conjunction with CTA10/S63(3)),
  • Deductions under CTA10/PART5A as group relief for carried-forward losses,
  • Deductions for losses of creative industries made under CTA10/S37 or under CTA10/PART5 in reliance on CTA09/S1210(3),1216DB(3), 1217DB(3), 1217MB(2), 1217SB(2) or 1218ZDB(2),
  • Deductions from total profits under CTA10/S303C for excess carried-forward non-decommissioning losses of a ring fence trade in the oil and gas industry,
  • Deductions under FA12/S124B for excess carried-forward BLAGAB trade losses.

From 6 April 2020, non-resident companies are chargeable to Corporation Tax instead of Income Tax on profits from UK property. Income tax losses that are carried forward to the corporation tax regime at 6 April 2020 are not restricted (PIM04326).

Exclusions and special rules

For Basic Life Assurance and General Annuity Businesses (BLAGABs), the policyholders’ share of Basic Life Assurance and General Annuity Business profits is excluded from the loss restriction.

The loss relief rules are modified in the way in which they apply to qualifying production/development companies that fall within the scope of creative industry tax reliefs (CTA09/PART15 to 15E).

Special rules apply to losses arising from ring fence activities and oil contractor activities in relation to the North Sea oil and gas regime (CTA10/Part 8 and CTA10/Part 8ZA).

Northern Ireland

Devolution of power to the Northern Ireland Assembly allows the Northern Ireland Executive to set its own rate of Corporation Tax for trading profits arising in Northern Ireland. The rules will apply to the Northern Ireland regime (CTA10/PART8B/CH3).