For accounting periods ending on or after 1 April 2020 companies making chargeable gains will only be able to offset up to 50% of those gains using carried-forward (allowable) capital losses.

A Corporate Income Loss Restriction (CILR) for carried-forward income losses was introduced in 2017 which included an allowance that the first £5m of profits per group could be offset with carried-forward losses before the 50% restriction is applied. The deductions allowance can now also be set against chargeable gains.

The Treasury says this will ensure that over 99% of companies are unaffected by the restriction.

The measure will have effect where carried-forward capital losses are used to offset chargeable gains accruing on or after 1 April 2020. Transitional arrangements will apply where an accounting period straddles this date.

An anti-forestalling provision was announced at Budget 2018 and took effect for any arrangement made on or after 29 October 2018.

From 1 April 2020, the loss restriction will have the effect that the amount of chargeable gains that can be relieved with carried-forward capital losses will be restricted to 50%.

The steps for computing the corporate income loss restriction (CILR) in Part 7ZA Corporation Tax Act 2010 will be amended to facilitate this restriction and enable the sharing of the £5m deductions allowance which forms part of the CILR.

Life insurers writing basic life assurance and general annuity business (BLAGAB) are excluded from the restriction so far as BLAGAB (ring-fenced) losses are offset against BLAGAB gains. This will be achieved by amendments to the BLAGAB rules and specific provision in Part 7ZA Corporation Tax Act 2010. This measure also includes several clarifications of the BLAGAB rules to ensure that the restriction operates as intended.

The restriction will not apply to companies with a ring-fence trade from oil-related activities where chargeable gains accrue within that ring-fence.

Real estate investment trusts (REITS) are subject to a specific tax regime that generally exempts chargeable gains. This measure will not apply to capital losses that are attributed in respect of property income distributions.

Companies which are insolvent and are being liquidated will be able to offset carried-forward capital losses against chargeable gains without restriction during the period of official liquidation.

Companies which have one-day accounting periods purely as a result of chargeable gains will be able to claim to access the full £5m deductions allowance over a financial year in addition to being able to offset allowable losses against other chargeable gains accruing during the same financial year without restriction.

Amendments will be made within Corporation Tax Act 2010 and Taxation of Chargeable Gains Act 1992 to facilitate this change.

All companies with one-day accounting periods (as a result only of chargeable gains) and profits in excess of £27,397 will be treated as ‘large’ for the purposes of applying The Corporation Tax (Instalment Payments) Regulations 1998 (SI1998/3175). This change will apply to accounting periods commencing on and after 11 March 2020.

In its Budget analysis, BDO said: ‘The relief announced in Budget 2020 will mean that certain companies which are insolvent and are being liquidated will be able to offset carried-forward capital losses against chargeable gains without restriction during the period of official liquidation. This will be a welcome relief.

‘In a further extension, companies which have one-day tax accounting periods purely as a result of chargeable gains will be able to claim the full £5m deductions allowance over an accounting financial year in addition to being able to offset allowable losses against other chargeable gains accruing during the same accounting financial year without restriction.

‘This is likely to be most relevant to non-resident property owning companies which have multiple capital disposals in the period 6 April 2019 to 5 April 2020.’

Treasury analysis suggests this measure will impact on about 200 corporates each year that will pay additional tax as a result of this measure: mainly large corporates within the banking, pharmaceutical, property investment and utilities sectors, groups with a large property portfolio, and insurance companies. It is set to raise around £150m annually.