644C Relief from corporation tax for losses from dealing in residential development land

Summary

This section restricts the relief for losses on dealing in residential development land incurred prior to 31 December 2008 where a claim for the relief in respect of those losses is made on or after 7 April 2009. Claims made after that day for relief in respect of losses on residential development land incurred before 1 January 2009 will be dealt with as follows:

1. such losses will be relieved on a value basis to the extent that they are carried forward to accounting periods ending after 1 January 2009,
2. such losses will be relieved on a value basis to the extent that relief is claimed to set these losses sideways or back against income chargeable to corporation tax at 25 per cent,
3. such losses will be ring fenced to income arising from dealing in residential development land in earlier accounting periods,
4. such losses will be relieved on a value basis where surrendered to a company within the same group and claimed against profits from dealing in residential land or other profits chargeable to tax at the 25 per cent rate of corporation tax, and
5. where such losses are terminal losses they will be available for relief on a value basis to the extent that they may be claimed against profits from dealing in residential development land.

Details

Definitions

(1)(a) “corporation tax referable to dealing in residential land” is defined in section 644B(2) and this definition is imported into this section.

“relevant corporation tax” is the corporation tax which would be chargeable for the accounting period apart from:

• tax withheld by the company from certain payments (sections 239 and 241) which have been paid over to Revenue,
• group relief for losses under section 420B,
• surcharges on undistributed income (sections 440 and 441), and
• any corporation tax attributable to a life business company (within the meaning of section 706) where that corporation tax is referable to profits of policyholders.

“relevant trading income” has the same meaning set out in section 243A, i.e. trading income other than so much of that income as is taxable at the 25 per cent rate of corporation tax.

“residential development land” has the same meanings as in section 644A, which provided a 20 per cent rate of income tax on dealing in residential development land.

Separate accounting periods

(1)(b) Where an accounting period of a company straddles 31 December 2008 it is treated as two accounting periods. The section then only applies to losses arising on or before that date.

Carry forward of losses

(2) Losses arising from dealing in residential development land that are carried forward are to be allowed on a value basis. This is achieved by reducing the amount of the residential development land loss by 20 per cent.

Computation of losses

(3) & (4) Losses from dealing in residential development land are removed from the scope of section 396(2) (the general provision which allows set off of losses sideways and back). The amount of the loss relating to dealing in residential development land is available for relief under subsections (3) to (11) of this section.

The mechanism for computing the amount of the loss relating to dealing in residential development land is set out. There must firstly be an overall loss in the trade. Then the amount of the loss relating to dealing in residential development land is computed using receipts and expenses relating to residential development land only and other receipts and expenses partly so relating, apportioned on a just and reasonable basis. If, however, the loss as so computed exceeds the loss in the trade then it is the amount of the loss in the trade that is taken as the amount of the loss relating to dealing in residential development land. Where the loss is incurred in an accounting period which straddles 31 December 2008 only the portion of the loss relating to the period falling before that date is removed from the scope of section 396(2).

(5) The loss computed in accordance with subsections (3) and (4) is treated as a loss in a separate trade and for the purposes of this section it is known as a “relevant loss”.

Carry-back and same period set off of losses

(6) & (7) A residential development land loss may be set sideways against income chargeable at 12½ per cent and 10 per cent and chargeable gains. Any excess may be set back under this subsection against similar income and gains of preceding accounting periods, ending within a specified time. The previous accounting periods in which relief can be given for a loss incurred in an accounting period are those ending in the time immediately preceding the accounting period in which the loss was incurred and which is equal in length to that accounting period. If necessary, parts of accounting periods can be taken into account for this purpose. This only applies to the extent that the company carried on actual trade during that immediately preceding period.

Set off of losses on a value basis

(8), (9) & (10) A company may claim relief on a value basis for a relevant loss (i.e. a loss arising from dealing in residential development land) in an accounting period that cannot otherwise be relieved.

The tax value of the unrelieved portion of the loss is available for set off against the relevant corporation tax for the accounting period. Losses are relieved in this way by reducing the relevant corporation tax for the accounting period in which they were incurred and of previous accounting periods, ending within a specified time, by 20 per cent of that loss. The previous accounting periods in which relief can be given for a loss incurred in an accounting period are those ending in the time immediately preceding the accounting period in which the loss was incurred and which is equal in length to that accounting period.

However, the reduction, which can be made in the relevant corporation tax for an accounting period falling partly before that time, is to be proportionately reduced on a time basis.

Carry forward of unused amounts

(11) Special rules apply to determine the amount of the losses that are to be regarded as having been used. The amount of losses, which are to be regarded as used, is determined by regrossing the loss relief given at 20 per cent. However, in loss relief generally, losses are offset against profits before deducting charges. Consistency with that approach is achieved by providing that the amount of losses treated as used is the amount that have been treated as used if there were no non-trade charges on income, expenses of management or other similar amounts deductible from profits of more than one description. This ensures that only the appropriate amount of losses is brought forward. However, the definition ensures that there is nothing to prevent the carry forward of excess capital allowances under section 308.

Application

(12) The section applies for all accounting periods where a claim is made to set a trading loss relating to residential development land sideways or backwards under section 396(2) and that claim is made on or after 7 April 2009.

Terminal loss relief

(13) The amount of the loss for which terminal loss relief can be claimed under section 397 where the trade ceases on or before 31 December 2008, will be reduced by the lesser of (a) the amount of the loss or (b) the amount of the loss which relates to dealing in residential development land (as computed under subsection (4)).

(14) The amount of the loss for which terminal loss relief can be claimed under section 397 where the trade ceases in the year 2009, will be reduced by the lesser of (a) the amount of the loss or (b) the amount of the loss which relates to dealing in residential development land (as computed under subsection (4)) for the portion of the period falling before 31 December 2008).

Value basis computation – terminal loss relief

(15) The company ceasing to carry on a trade which includes dealing in residential development land may claim relief under subsections (15) to (17) in respect of amounts restricted under subsection (13) or (14).

(16) & (17) Relief is granted for this loss by permitting the company to reduce the corporation tax of the company so far as it is corporation tax referable to income from dealing in residential development land by 20 per cent of the loss in the same manner as terminal losses are relieved under section 397.

(18) The income of accounting periods for which terminal loss relief is claimed is to be reduced by an amount of income corresponding to the amount of corporation tax referable to income from dealing in residential development land before any relief under subsection (15). The corporation tax paid by the company is also deemed to be reduced by the corporation tax referable to income from dealing in residential development land paid by the company and not repaid to it.

Application of terminal loss relief provisions

(19) The section shall apply where a claim is made for terminal loss relief in a trade that ceases on or before 31 December 2008 and that claim is made on or after 7 April 2009.

Group relief

(20) Losses from dealing in residential development land are excluded from the scope of the general group relief provisions (i.e. subsections (1) to (6) of sections 420 and 421). The amount of the loss relating to dealing in residential development land is available for relief under subsections (21) to (25) of this section.

Value basis relief

(21)(a) The tax value (i.e. 20 per cent of the loss) of surrendered losses arising from dealing in residential development land may be set against corporation tax (if any) referable to dealing in residential development land of the claimant company for a corresponding accounting period.

Value of losses surrendered

(21)(b) The mechanism to determine the amount of losses to be treated as used for the purposes of ensuring that relief will not be granted more than once in respect of the same loss is set out. The amount of losses that are regarded as used is determined by regrossing the amount by which the relevant corporation tax of the claimant company is reduced by virtue of subsection (21)(a).

Set off of losses

(22) Losses from dealing in residential development land may be set off against profits of the claimant company chargeable at 12½ per cent or 10 per cent in the normal way.

Order of losses

(23) The order of set off of losses is set out. Group relief allowed under subsection (22) will reduce the trading income of the claimant company for an accounting period before relief for terminal losses under section 397 and after any relief granted under section 396 in respect of a loss incurred in a preceding accounting period.

Sharing of group relief

(24) Where a claim for group relief is made by a company as a member of a consortium then the fraction each claimant can claim is determined by reference to the member company’s share in the consortium.

Value basis relief

(25) & (26) A claimant company may claim relief in respect of the tax value of losses (20 per cent of the loss) arising from dealing in residential development land incurred by the claimant company against corporation tax chargeable on income at the 25 per cent rate.

Application of group relief provisions

(27) Subsections (20) to (26) are treated as if they were part of the group relief provisions contained in Chapter 5 of Part 12. This ensures that all the definitions and provisions of general application for the purposes of that Chapter will also apply for the purposes of these subsections.

Operative date

(28) Subsections (20) to (27) shall apply where a claim is made for group relief and that claim is made on or after 7 April 2009.

Relevant Date: Finance Act 2019