Annex 1: Minor changes in the law Change 49: Changes in company ownership: company with investment business: restriction on relief for non-trading loss on intangible fixed assets: sections 681 and 698
This change clarifies the restriction imposed by section 768E of ICTA, when there is a change in the ownership of a company with investment business, on relief for a non-trading loss on intangible fixed assets.
If there is a change in the ownership of a company with investment business, and the relevant conditions are met, section 768E of ICTA has effect to prevent relief being given for a non-trading loss on intangible fixed assets incurred before the change of ownership against profits arising after that change.
In particular, section 768E(5) of ICTA provides that a loss made in any accounting period beginning before the change of ownership may not be set off against profits under section 753(3) of CTA 2009.
But an unrelieved non-trading loss on intangible fixed assets is not, as such, set against profits. Section 753(3) of CTA 2009, so far as relevant, says:
“To the extent that the loss is not set off … it is carried forward to the next accounting period of the company and treated as if it were a non-trading debit of that period”
Section 768E(5) of ICTA blurs the distinction between:
	calculating the company’s non-trading gain or loss under section 751 of CTA 2009; and
	setting a non-trading loss against profits under section 753(1) of that Act.
Section 768E(5) uses wording derived from paragraph 35(1) of Schedule 29 to FA2002, which has been rewritten as section 753(1) of CTA 2009; it does not reflect section 753(3) of that Act.
The purpose of section 768E of ICTA is set out in section 768E(1) of that Act. It is therefore considered that the courts would adopt a rectifying construction of section 768E(5) of that Act in order to restrict relief which would otherwise be given under section 753(3) of CTA 2009.
Accordingly, sections 681(3) and 698(4) (which are based on section 768E(5)(a) and (b) respectively of ICTA) reflect the wording of section 753(3) of CTA 2009. This has different effects in the context of sections 681(3) and 698(4). In a case within section 681(3), profits arising after the change in ownership cannot be sheltered at all. In a case within section 698(4), the extent to which profits arising after the change in ownership can be sheltered is restricted. This reflects the differing wording of section 768E(5)(a) and (b) of ICTA: “profits” and “so much of those profits”.
This is a change in the law, in that it prevents taxpayers arguing for an alternative interpretation.
This change is adverse to some taxpayers in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.