BN11: Corporate Capital Losses
Who is likely to be affected?
1. Those companies that take part in schemes or arrangements in order to gain a tax advantage from capital losses.
General description of the measure
2. As announced in the Pre-Budget Report 2005, three targeted antiavoidance
rules will be introduced to ensure that the creation and use of capital
losses is restricted to genuine commercial transactions. Following consultation,
minor amendments have been made to the legislation
dealing with tax-motivated loss and gain buying so that it operates as intended.
Changes have also been made to the guidance issued in the Pre-Budget Report
in order to provide further clarity for business.
Operative date
3. All three anti-avoidance rules will be effective from 5 December 2005.
Current law and proposed revisions
4. The clauses, announced in the Pre-Budget Report, repeal Section 106 and Schedule 7AA of the Taxation of Chargeable Gains Act 1992 (TCGA). They insert new Section 184A to 184I, and amend Section 8 TCGA 1992.
5. The clauses are aimed at deterring:
- the contrived creation of corporate capital losses.
- the buying of capital gains and losses; and
- the conversion of income streams into capital gains, and the creation of a capital gain matched by an income deduction, where the gains are then wholly or partly franked by capital losses.
6. Since the publication of draft clauses on 5 December 2005, changes
have been made to ensure that new sections 184A and 184B do not adversely
affect some cases where companies realised a capital loss before 5 December
2005, and to address interactions between these sections and
other rules providing for the roll-over or deferral of capital gains. The
guidance notes have been expanded and refined following comments received
during the consultation with business that concluded on 6 February 2006.
Further advice
7. If you have any questions about this change, please contact Robert Jordan on 0207 147 2622. Information about Budget measures is now available.
