As part of the 2018 Budget, it was announced that rules introduced in April 2017 for the utilisation of carried forward corporation tax (CT) income losses would also be extended to a company’s capital losses.
Current rules
Since April 2017, carried forward corporation tax income losses have only been available for offset against 50% of profits. A deductions allowance of £5 million is, however, available with the restriction only applying above this de minimis.
Example
In the above example, no CT liability would arise as the income profits are within the deductions allowance and capital gains are excluded from the regime with sufficient losses to offset.
Extension to capital losses
From April 2020, however, capital losses will also be required to be taken into account and subject to the 50% restriction.
Using the same example above, it is anticipated that only £6 million of losses would be available for offset (i.e. £5 million plus 50% of £2 million), leaving £1 million subject to corporation tax under the new rules.
The 2017 rules for income losses also brought about some increased flexibility for the use of losses, however, as there are already some provisions in place for group relieving capital losses, there will be no further changes in this regard.