UK and International Tax news
FTT Hears Tax Case Involving Carried Forward Losses
Tuesday 7th January 2025
The FTT has recently heard a case involving the utilisation of brought forward losses comprising non trade loan relationship deficits and whether the anti avoidance provision in s.730G CTA2010 applied to tax arrangements in the generation of taxable profits to be sheltered by the losses brought forward.
In Blackfriars Hotel (UK) Holdings Ltd v HMRC [2024 UKFTT 1095 TC], the appellant BHHL was a holding company of two hotel owning subsidiaries. BHHL obtained a third-party bank loan of £28m and used £20m to subscribe for equity in one subsidiary BHL The balance of £8m was lent to the subsidiary.
BHHL subsequently had non-trading loan relationship deficits, arising largely due to interest on the bank loan being greater than interest earned from BHL. Whilst some of the deficits were surrendered to BHL by way of group relief. BHHL built up a substantial balance of losses over subsequent accounting periods. With the change in the rules for the utilisation of pre April 2017 corporation tax losses, BHHL found that it could only carry forward the unutilised losses for use against future profits and not surrender as group relief.
The company decided to implement an arrangement which involved BHL reducing its share capital and paying a large dividend to BHHL which was used to fund an interest bearing loan back to BHL This resulted in taxable profits in BHHL which could be sheltered by the losses brought forward. This “refreshing” of losses brought forward allowed valuable in-year deductions in BHL which could be surrendered to other group companies.
HMRC disallowed the loss offsets in BHHL by applying the loss refreshing anti avoidance rule in s.730G CTA 2010. This rule applied if five conditions A to E were met. It was accepted that conditions B to E were met so the appeal before the FTT was only concerned with the interpretation and application of condition A.
Condition A applied when a company has relevant profits for an accounting period, and these have arisen to the company as a result of any tax arrangements and, in the absence of this section, the company would, for corporation tax purposes, be entitled to deduct from the relevant profits for the period an amount in respect of any relevant carried-forward losses.
After due consideration, the FTT concluded that all the profits made by BHHL in the accounting periods under consideration were relevant profits for the purposes of s.730G, and BHHL was not entitled to deduct any amount of its carried forward non-trading loan relationship deficits from any of those profits. The appeal was dismissed, but leave to appeal was granted.
If you would like more information on this decision, please contact Keith Rushen on 0207 486 2378.
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