Tax Updates: Corporate Capital Loss Restriction & Income Tax Relief, Enterprise Investment Scheme Knowledge-Intensive Fund

Corporation Tax – Corporate Capital Loss Restriction (CCLR)

For accounting periods ending on or after 1 April 2020 companies making chargeable gains will only be able to offset up to 50% of those gains using carried-forward capital losses.

However, the first £5 million company/group’s annual deductions allowance (introduced in 2017) will be able to be used against profits and/or gains as determined by the taxpayer. Therefore, the total amount of gains against which carried forward capital losses can be set is the total of the company/group’s deductions allowance (£5 million) not used against profits in the period and 50% of the company/group’s relevant gains.

Capital losses will continue to only be used against capital gains but income losses brought forward (other than pre-April 2017 trading losses) may also be offset against capital gains (subject to the restrictions set out above). Losses arising in any given year must first be used against capital gains arising in that same period before using any capital losses brought forward.

Accounting periods straddling 1 April 2020 will be split each side of 1 April, with the 50% restriction only applying to the period from 1 April 2020.  Capital losses will apply as a current year loss in both split periods.

A single dormant company which has a one-day accounting period due to realising a capital gain will be able to use the full £5m deductions allowance (i.e. no prorating).

Income Tax Relief and the Enterprise Investment Scheme Approved Knowledge-Intensive Fund

The EIS rules will be amended to introduce an ‘approved knowledge-intensive fund’ that will:

• require the funds to focus on investments in knowledge-intensive companies
• give approved funds a longer period over which to invest fund capital (requiring 50% investment within one year of the fund closing and 90% within two years, compared to the current requirement of 90% within one year)
• allow investors in an approved fund to set their Income Tax relief against liabilities in the tax year, or against their liability of the previous tax year, before the fund closes. 

These changes will be subject to State aid approval.

For further information and advice, please contact Fiona Cross, fiona.cross@sgllp.co.uk or Gary Moment, gary.moment@sgllp.co.uk or call +44(0) 027 447 9000