CTM07010 - Transfer of deductions – Introduction

CTA10/Part 14A

The transfer of deduction rules were introduced by FA13 for “qualifying changes” of ownership on or after 20 March 2013 (CTM07020). The rules were introduced to bring the treatment of unrealised expenses in line with the long-standing CTA10/Part 14 change of ownership rules for crystallised losses.

In broad terms the rules prevent deductions where a company changes ownership with expenses that have not yet been recognised for tax, but are ‘highly likely’ (CTM07030) to be deducted at a later point after the change.

The rules are split into two areas:

• The loss shifting rules in S730C operate where the deductible amounts would crystallise and be used against a company’s total profits (under CTA10/S37) or be surrendered as group relief (under CTA10/Part 5) (CTM07050) or surrendered as group relief for carried-forward losses (under CTA10/Part5A).
• The profit shifting rules in S730D operate where arrangements put profits into a company after a qualifying change and that company has deductible amounts (CTM07060)

Both of these are subject to a motive test (CTM07040).

The rules were introduced alongside an enhancement to the anti-Capital Allowance buying rules in CAA01/Part 2/Chapter 16A (CA27810 onwards).