Annex 1: Minor changes in the law Change 50: Changes in company ownership: company with investment business: asset transferred within group: restriction on reliefs for non-trading loss on intangible fixed assets and property losses: sections 698, 700 and 701
This change clarifies the restrictions imposed by sections 768D and 768E of ICTA on relief for, respectively, property losses and non-trading losses on intangible fixed assets when there is a change in the ownership of a company with investment business and an asset is transferred within the corporate group of which that company is a member.
If there is a change in the ownership of a company with investment business, and section 768C of ICTA (deductions: asset transferred within group) applies, sections 768D and 768E of ICTA have effect to prevent relief being given for, respectively, property losses and non-trading losses on intangible fixed assets incurred before the change of ownership against profits arising after that change.
Sections 768D(6)(b) and 768E(5)(b) of ICTA quantify this restriction by reference to the amount of profits which “represents the relevant gain within the meaning of [section 768C of that Act]”, but they do not expressly define this technical expression.
But sections 768D(6)(b) and 768E(5)(b) of ICTA only apply in cases in which section 768C of that Act applies, and it would be anomalous if the words under review had a different meaning in sections 768D(6)(b) and 768E(5)(b) of ICTA from the meaning which they have in section 768C(8) of that Act. Sections 768D(6)(b) and 768E(5)(b) of ICTA therefore refer to section 768C(8) of that Act by implication. Since section 768C(8) of ICTA only applies if section 768C(6) of that Act applies, sections 768D(6)(b) and 768E(5)(b) of that Act also refer to section 768C(6) of that Act by implication and so are similarly restricted by that provision.
Section 698 of this Act (restriction on relief for non-trading loss on intangible fixed assets) is based on section 768E of ICTA, and sections 700 and 701 of this Act (disallowance of UK property business losses and disallowance of overseas property business losses) are based on section 768D of ICTA. Sections 698(2), 700(2) and 701(2) of this Act mirror the restriction in section 768C(6) of that Act. They therefore expressly restrict the application of sections 698, 700 and 701 of the Act.
This limitation is a change in the law, since it prevents HMRC arguing that any of these restrictions has a wider scope.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.