OT67020 - Transferable tax history - Supplementary Charge - What is the effect on the SC position of the buyer and seller?

As set out in OT60040 the amount of TTH that can be transferred is calculated by reference to the ring fence CT (RFCT) profits. As a consequence the final taxable adjusted ring fence profits (ARFP) associated with the RFCT profits are transferred. OT60040 also sets out how the ARFPs are apportioned if the full amount of RFCT profits are not transferred.

Seller

As set out in OT62010 where the seller transfers TTH they will immediately and irreversibly be treated as never having made those adjusted ring fence profits or paid the Supplementary Charge due on those profits. In addition, where the seller’s adjusted ring fence profits are reduced by allowances (Investment allowance, Onshore allowance and Cluster Area allowance), these cannot be subsequently displaced by a later loss carry back.

For example, a seller transfers RFCT profits of £1,000,000 and ARFP of £800,000 (which is made up of £1,000,000 RFCT + £200,000 finance costs less £400,000 Investment Allowance) for the year ended 31/12/18. In 2025 the seller makes a loss that can be carried back past the year ended 31/12/18. There are no profits to set the loss against for the period and it is not possible to displace the investment allowances.

In the earliest accounting period included in a TTH election it is possible for the seller to include a proportion of RFCT profits either because the seller chooses less or because the TTH “cap” is reached. Where this happens the relevant proportion of the ARFPs is also transferred and the remaining proportion of the adjusted ring fence profits is to be treated as if it contains the corresponding proportion of finance costs and any allowances made under Part 8 CTA 2010 (Investment allowance, Onshore allowance and Cluster area allowance).

| | Pre-transfer position | | Post-transfer position | |—|———————–|—|————————| #### Example 1 - Seller’s position - 50% of RFCT profits transferred

RFCT profits	10,000,000	RFCT profits	5,000,000
Finance costs	4,000,000	Finance costs	2,000,000
ARFP	14,000,000	ARFP	7,000,000
Investment All	(2,000,000)	Investment All	(1,000,000)
Taxable ARFP	12,000,000	Taxable ARFP	6,000,000

Buyer

The ARFPs of the seller may have been reduced by any allowances made under Part 8 CTA 2010 (Investment allowance, Onshore allowance and Cluster area allowance) prior to their inclusion in a TTH election. Where this happens the buyer acquires an amount of ARPFs and the associated tax but not the allowances and these cannot be displaced and reused on a carry back.

Example 2 - Buyer’s position

	Pre-transfer		Post-transfer
RFCT profits	10,000,000	RFCT profits	5,000,000 (@30%)
Finance costs	4,000,000	Finance costs
ARFP	14,000,000	ARFP
Investment All	(2,000,000)	Investment All
Taxable ARFP	12,000,000	Taxable ARFP	6,000,000 (@10%)

The following pages deal with the mechanism for calculating the SC repayment following a loss carry back to a TTH accounting period.