Relief for capital losses c/f in Ltd Co.

[Alcosaint]

Looking for a bit of help please - I'm aware that Ltd Co capital losses can be carried forward and set off against future capital gains and to my knowledge there is little else that can be done with the losses.

On the basis that they are c/f, are there likely to be any problems with relieving the losses in the following circumstance (I ask because I know HMRC can sometimes exclude certain tax reliefs when it comes to dealing with land or property developers)....

Holding Co has 1 subsidiary only (Sub Co), 100% owned. The only income received by Holding Co has been management charges paid by the Sub Co. The Sub Co's prinicpal activity was new build, residential house building. Sub Co went into receivership last year and Holding Co's investment in Sub Co is now worthless (original cost of share cap was £X,000,000).

If the Holding Co declares capital losses on its CT600, could these be set off against capital gains if it were to make a gain on sale of land in years to come? I.e. Holding Co acquires land for £1M and sells it to a New Co for £2M? (for info, New Co and Holding Co would have common shareholders but no direct investment by one in the other). Or are there exclusions from loss relief when land is involved?

[Incredulum]

Are you into not substantial shareholdings relief on disposal of a trading company - so there is no capital loss? (Sch 7AC TCGA - which admittedly is written like sludge?)


In the event you do in fact have a capital loss, then yes, if Co A acquires a fixed asset investment and subsequently sells it outside its capital gains group (s171 TCGA) thus giving rise to a chargeable gain, then these losses can be used.


The circumstances you describe would indeed allow this to happen. I cannot however imagine why you think there is a point in crystallising a gain at this point - just wait until you eventually want to sell the property and then you can sell it to a third party free of corporation tax. You would also incur an SDLT charge on your intercompany transfer.

[Alcosaint]

Thanks Inc'um - next stop is the 'sludge' you referred to - I knew nothing about substantial shareholdings relief, but your reply has at least given me pointers for how to go forward.

As for crystalising the loss - the Holding Co shareholders have already demonstrated a talent for acquiring land at less than market value. The fixed asset investment doesn't yet exist, but assuming a good deal can be had on a piece of land, Holding Co's gain (by selling to NewCo (a house builder) at market value) could be passed into Newco's P&L, reducing its profits and saving CT. Holding Co and NewCo would be associated, which needs to be taken into account, but does all of the above make sense or am I missing something obvious?

[Incredulum]

or am I missing something obvious?

I'm afraid I think that it doesn't look anything like a fixed asset investment to me, but rather an item held as stock, and therefore giving rise to trading profits.

Now, if you can acquire an investment property that throws off a sensible rent for a few years and then get planning and sell it on to Newco, then perhaps you have a capital disposal. But bare land is "obviously" stock.

[Incredulum]

PS

the Holding Co shareholders have already demonstrated a talent for acquiring land at less than market value... or am I missing something obvious?

The fact that they made a huge loss last time they tried it?

[Alcosaint]

Indeed! Huge loss was after many years of much much 'huger' trading profits though, brought to a shattering halt when the wheels (read 'wheels, exhaust, doors, suspension and aerial') came off the construction industry. And you know what they say about blood on the streets... more opportunity than there has been for a long time to pick up land...

Thanks again for the advice, including pointing out the "obvious" trading asset which is land stock. I already knew that. Obviously. Honest (thanks!)