The measure

The Government has announced a relaxation of the rules restricting the use of certain corporation tax losses when companies undergo a change of ownership.

At present, relief for tax losses arising before a change of ownership is restricted if there is a 'major change in the nature or conduct of the trade' of a trading company or a 'significant increase in capital' of a non-trading company within 3 years of the change of ownership.

The Government has announced that these provisions will be relaxed when a new holding company is inserted at the top of an existing corporate group (for example, by individual shareholders), which currently constitutes a change of ownership for all of the entities in the group.

In relation to non-trading companies, there are further changes to the definition of a 'significant increase in capital'. Currently, a 'significant in increase in capital' arises if the level of post-change capital exceeds the level of pre-change capital by either 100% of the pre-change level or £1 million, if lower.

This will be amended so that the rules apply only where the level of post-change capital exceeds the pre-change level by both 25% of the pre-change level and £1 million.

Who will be affected?

Groups of companies undergoing a change of ownership.


Draft legislation will be introduced in Finance Bill 2014, and is expected to take effect from Royal Assent 2014.

Our view

Following the extension of the loss buying provisions in Finance Act 2013, the simplifications announced today are welcome. The £1 million threshold for a 'significant increase in capital' has long proven to be a low one in respect of large transactions, so changes to ensure that only relatively large increases in capital are taken into account are particularly welcome.

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