CIT Losses

Question 1

How do you treat CGT losses for companies?

Answer 1

After setting off against other gains for the period, carry these forward and set off against future gains. Cant relieve against general income

Question 2

What is S45A relief?

Answer 2

This is when you carry forward your trading losses and set off against future trading income

Question 3

What is S37 relief?

Answer 3

This is where trading losses are set off against total profits in the same period, then carried back and set off against total profits in the prior tax year profits. Claim as much as possible in current year and as much as possible in the preceeding year.

you must claim the trading losses against income first, before QCD deductions.

*note this is different to S64 relief for sole trader trading losses as it must be claimed in the current year first and then carried back

Question 4

What is temporary extended loss carry-back?

Answer 4

For losses incurred between 1 April 2020 to 31 March 2022, you can claim the losses against the company’s total profits of the preceding three years. The maximum losses that can be carried back are restricted to a max of £2m for accounting periods ending between 1/4/21 - 31/3/22 and an additional £2m for accounting periods between 1/4/21 - 31/3/22.

i. e. you can only claim 2m loss for the above periods.
* to check an example on the aggregate here

Question 5

What is terminal loss relief?

Answer 5

This is when trading losses are incurred in the final 12 months of the business operating. You carry back the loss for the preceding thirty-six months on a LIFO basis (after deducting from the current year). There is no cap on losses claim under terminal loss relief

Question 6

What is S463B relief?

Answer 6

Under this relief, you can relieve a NTLR losses against other income for the period. You can claim partial amounts in order to preserve other relieve.

Question 7

What is the deductions allowance

Answer 7

Refers to the maximum amount of loss relief a company claim against carried forward losses. It is limited to 5m Plus 50% of excess profits (above £5m) (for a 12 month period).

Question 8

how do you calculate the maximum amount that you can deduct for a year?

Answer 8

calculate total profits for the period, and then take 5m and 50% of the profits which are exceeding £5m. If the total profits are £5m, then all profits could be offset against loss relief.

Question 9

How to determine what companies are in a loss relief group?

Answer 9

Companies are in a loss relief group if there is at least 75% direct or indirect ownership held by the parent company.

Companies can be in more than one loss relief group. but you cant transfer the loss between the groups (obviously).

Question 10

What is the purpose of the loss relief groups?

Answer 10

The purpose is to surrender or transfer losses from within the group to other members.

Question 11

How is the group loss relief claimed?

Answer 11

The claimant company must make the claim within 2 years of taking. They must also have approval from the surrendering company for doing so.

Question 12

When do you claim group relief in the workings?

Answer 12

You claim group relief by deducting from taxable profits, which is after deductions of any QCD.

Question 13

What losses must the claimant company use before claiming group relief?

Answer 13

The claimant company must have first used up their losses b/f before claiming any relief from the group or surrendering any to the group.

Question 14

What current period losses don’t need to be set off against current period profits before surrendering the rest to the group?

What current period losses must first be set off against current period income?

Answer 14

There is no requirement to offset TRADING losses and NTLR losses against taxable income for the period. You can surrender all to the groups if you wish to do so.

Any property loss and QCD losses must be set off against current period income, first. Only the excess amounts of this can be transferred to other members of the group.

Question 15

How to determine if companies in chargeable gains groups?

Answer 15

Companies are in a chargeable gains groups where the parent has 75% direct control, or 51% indirect control of the companies.

Companies cannot be in more than one chargeable gains groups.

Question 16

What are the four consequences of a chargeable gains group?

Answer 16

1) NGNL transfer within the group
2) Degrouping charge when the acquiring company exits the chargeable gains group
3) You may transfer chargeable gains within the group companies
4) You can claim rollover relief when a company in the group has a gain on disposal, and another group entity purchases a replacement asset.

Question 17

What happens if are assets transferred in the CGT group?

Answer 17

Subject to NGNL - no CGT

Question 18

When does a degrouping charge arise?

Answer 18

When a group company leaves the group. i.e. likely to be when parent disposes of shares in subsidiary with which it had previously exchanged an NGNL in the last 6 years!

Question 19

How do you calculate the degrouping charge?

Answer 19

This charge will represent the capital gain that would have arisen had it not been a NGNL transfer. For example, it is the gain that would arise on transfer within the group.

Question 20

On disposal of shares in a group member which would lead to a degrouping charge - how do you treat:

i) The gain that arises; or
ii) The loss that arises.

Answer 20

The gain would be added to the sale proceeds from selling the shares in the group company

The loss is added to the cost of the shares from selling the shares in the group company.

Question 21

What happens to the degrouping charge if the disposal of shares meets the Substantial shareholding exemption criteria?

Answer 21

The degrouping charge would also, therefore, be exempt and there would be no CGT payable on this amount.

Question 22

When is there a substantial shareholding exemption?

Answer 22

When companies dispose of >10% shares in a trading company which they have held for 12 months consecutively in the last 6 years.

Question 23

How do you treat carried forward losses within a group?

Answer 23

Any carried forward loss must first be set against the income of that company for the period. Any excess can then be surrendered to other group companies.