OT63040 - Transferable tax history - Effect of a TTH election on the buyer - Effect of trade loss provisions

Where the purchaser has made a decommissioning loss (see OT63030) in its ring fence trade, and that loss is carried back to previous accounting periods, the loss should be relieved under the normal rules in Part 4 CTA 2010, with the following modifications:

• in the case of a claim under CTA10\S37, the purchaser’s total profits of an accounting period to which the loss is carried back are to be treated as being the total of:
  • The purchaser’s actual total profits for that period, and
  • The amount of activated transferred profits allocated to that period in respect of the loss-making AP.
• Where relief is given under CTA10\S42, the purchaser’s ring fence profits of an accounting period to which the loss is carried back are to be treated as being the total of:
  • The actual profits of the purchaser’s ring fence trade for that period, and
  • The amount of activated transferred profits allocated to that period in respect of the loss-making AP.

Where a loss is carried back to an AP to which an amount of activated transferred profits has been allocated, whether in accordance with CTA10\S37 or CTA10\S42, the loss should be set first against the purchaser’s own profits, and then against the activated transferred profits allocated to that period only if, and to the extent that, there remains an amount of loss unrelieved after set off against the purchaser’s own profits.

Note that there is no special claim to set profits against TTH. A company claims loss relief in the normal way, and activated transferred profits are then treated as profits of the purchaser in accordance with the above to the extent required. A purchaser cannot elect to skip over activated TTH profits of an accounting period, and carry a loss back to earlier years instead.

Example

Purchaser (P) makes a decommissioning loss in its ring fence trade of £20m in AP 10, which it carries back in accordance with CTA10\S37. In the preceding APs it had the following profits:

	Ring fence trade profits	Non-ring fence trade profits	Total profits	Activated transferred profits allocated to the AP
AP 9	£0	£1m	£1m	-
AP 8	£1m	£0.5m	£1.5m	-
AP 7	£2m	£1m	£3m	-
AP 6	£4m	£1m	£5m	£7m
AP 5	£3m	£2m	£5m	£7m

The loss is relieved as follows:

• £1m set off against total profits in AP9
• £1.5m set off against total profits in AP8
• £3m set off against total profits in AP7
• £4m set off against ring fence profits in AP6 (losses cannot be carried back for four years against non-ring fence profits)
• £7m set off against activated transferred profits allocated to AP6, as the balance of the loss (20m – 9.5m already relieved = 11m) is greater than the activated transferred profits of the period.
• £3m against ring fence profits of AP5.
• £0.5m against activated transferred profits allocated to AP5, this being the unrelieved balance of the loss.

For each period to which an activated transferred profit amount has been allocated, the loss must be relieved first against the company’s own profits, and only then against the activated transferred profits amount, if a balance of the loss remains unrelieved.