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A company will typically make a capital loss when it sells a capital asset for less than it paid for it. Such losses are deducted from any chargeable gains which the company has for the same accounting period. If there are insufficient gains to make use of all or part of a loss in this way, the remainder is carried forward for set off against gains of future periods. In some circumstances, however, relief for losses may be restricted, or denied under anti-avoidance legislation.
A company makes a capital loss (referred to in the legislation as an ‘allowable loss’) if it disposes of a chargeable asset and the proceeds are less than the allowable costs. A loss may also arise where there is no actual disposal of an asset but the legislation deems there to be a disposal, for example where an asset is destroyed or becomes of negligible value. Indexation allowance
Calculation of corporate capital gainsThis guidance note sets out the details of the calculation of a corporate chargeable gain, allowable capital losses and the restrictions on their use. It also covers disposals involving foreign currency, the interaction with capital allowances and wasting assets. A number of helpful practical points are also set out at the end of the note. For a general overview of corporate capital gains, including the scope of the charge, see the Corporate capital gains 鈥� overview guidance note.Calculation of gainsA separate computation will be required for each asset that is disposed of during a company鈥檚 accounting period.For a proforma for calculating gains and losses, see Proforma 鈥� corporate capital gains computation.To calculate the gain, it will be necessary to determine the following:鈥ate of disposal鈥isposal proceeds鈥cquisition costs鈥llowable expenditure鈥f the asset was acquired before 1 January 2018, indexation allowance up to 31 December 2017Each of these elements is explained in detail below.The other guidance notes in this section provide further details with regard to specific issues as they apply to companies.Disposal dateGenerally, the date of disposal will be the date of the contract or, if it is a conditional contract, the date that the condition is satisfied. It should be noted that the rule under TCGA 1992, s 28 (which fixes the date of disposal for an unconditional contract as the date of the contract) only applies if the contract is completed (ie if the disposal actually takes place) and so it
Carried-forward losses restrictionOverview of the carried-forward loss restrictionAn important restriction in the use of losses carried forward was introduced by Finance (No 2) Act 2017. Subject to a de minimis of £5m (known as the deductions allowance), most carried-forward losses are restricted to a set-off which is limited to 50% of profits.The rules restricting losses apply to accounting periods beginning on or after 1 April 2017, but with straddling provisions as discussed below. It is important to note that the 50% restriction also applies to trading and certain other income losses carried forward from periods before 1 April 2017.For further details including the increase in the deductions allowance for the reversal of an onerous lease and also for insolvent companies see Simon鈥檚 Taxes D1.1108BA.HMRC guidance can be found at CTM05010 onwards.Extension of the restriction to capital losses from 1 April 2020For accounting periods beginning on or after 1 April 2020, with transitional rules (see below) for periods straddling that date, the use of carried-forward capital losses is restricted, in a similar way to income losses. From this date, the £5 million deductions allowance must be shared between income and capital losses, with the proportion of the allowance that is attributed to the use of carried-forward capital losses referred to as the 鈥榗hargeable gains deductions allowance鈥�. The effect of the capital loss restriction is to restrict the amount of chargeable gains that can be relieved with carried-forward losses to 50% where they exceed the chargeable gains deductions allowance. There is
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