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Reform to loss relief, and changes to SSE and DTTP – new consultations published

Proposed changes to the use of carried forward losses and potential amendments to the existing Substantial Shareholding Exemption regime were announced at Budget 2016. Consultation documents are now available for comment.

In addition, a new consultation on a possible simplification of the Double Taxation Treaty Passport (DTTP) scheme was announced on 26 May 2016.


Reform to corporation tax loss relief:

  • New rules apply from 1 April 2017
  • Use of losses carried forward restricted to 50% of profits
  • £5m group-level allowance
  • Losses carried back not affected
  • More flexibility on use of carried forward losses
  • Changes not be applied to Ring Fence.

Reform to Substantial Shareholding Exemption:

  • Number of options to simplify the existing regime
  • Changes to further promote the UK as a holding company location
  • Options include: removing the trading requirement at the level of the investor group, increasing the qualifying activities that an investee can undertake; reducing the 10% shareholding requirement, and waiving the investee trading requirement condition post the disposal.

  DTTP scheme review:

  • Simplification of the administrative burden
  • Expansion beyond corporate to corporate lending
  • Funds and partnerships could be included.

If you think the new rules could affect your business and you would like to discuss the details or would like help in putting together a representation, please get in touch:

Here’s the detail with comments from your CW Energy experts:

Reform to loss relief, changes to SSE and DTTP – new consultations published

The government published three consultation documents on 26 May 2016 concerning the reform to corporation tax loss relief, reform of the Substantial Shareholding Exemption (SSE) regime, and the simplification of the existing Double Taxation Treaty Passport (DTTP) scheme.

Reform to corporation tax loss relief

At Budget 2016 the Chancellor announced changes to the use of corporation tax losses, in particular proposing a restriction to the use of losses carried forward together with more flexibility on using carried forward losses against different sources of income.

Last Thursday a consultation document was published asking for views from interested parties on the detailed proposals. It is expected that the new rules will apply from 1 April 2017.

The government does not intend the reform to apply to carried-forward losses relating to ring fence oil and gas activities.

The rules will apply to trading losses, non-trading loan relationship deficits, UK property losses, management expenses, and non-trading losses on intangible fixed assets. Capital losses are however excluded. However, the use of losses against trading and non-trading profits will be calculated separately.

The proposal is to restrict the use of losses carried forward to 50% of total profits arising in the period after 1 April 2017, subject to a de-minimis £5m allowance. The restriction will apply after the use of group relief. Carried back losses will be excluded from the restriction, and be available to offset any profits remaining after a loss carry forward restriction has applied.

The £5m allowance will operate on a group level. That is £5m of profits within the group can be sheltered by carried forward losses without restriction, with the taxpayer having a free choice over which profits to use in this way.  The restriction will then be applied to the remaining profits (after group relief claims have been made).

It is envisaged that there will be a step calculation for arriving at the losses that can be used. Pre 1 April 2017 losses will be used in priority to post 1 April 2017 losses.

Unused losses which have been subject to the restriction can be carried forward in the usual manner.


On a positive side, there will be increased flexibility over the usage of post 1 April 2017 losses carried forward against the taxable profits of different activities and the taxable profits of group companies. however, the “schedular system” for computing corporation tax profits will remain unchanged.


The restriction to using losses is clearly unwelcome, particularly for cyclical businesses, so we are pleased that the government intends to protect ring fence activities. However, companies with non-ring fences activities could be significantly affected and may want to consider making representations.

The consultation closes on 18 August 2016 and the government expects responses in the form of answers to a number of questions addressed in the consultation document.

Download a copy of this Government Consultation Document

Reform to the Substantial Shareholding Exemption (SSE)

A potential reform to the SSE regime was also announced by the Chancellor at Budget 2016, however at that time it was unclear what sort of changes could be expected.

The current consultation contains a number of proposals regarding the possible simplification of the regime with an intention of further promoting the UK as a holding company location and attracting further inward investment. The government wishes to remove some of the impediments to the current rules applying without providing a blanket exemption.

The current regime exempts chargeable gains arising on the disposal of shares in certain circumstances. For the exemption to apply a number of conditions must be met, amongst which are a requirement that the investment was at least 10% of the investee, and that the investor and investee were both broadly trading groups.

Amongst options for change in respect of which the government is seeking views are the following:

  • To remove the condition that the company making the disposal must be part of a trading group
  • To expand the qualifying nature of activities that an investee can undertake
  • To make less fundamental changes to the current investor and investee tests
  • To amend the ordinary share capital requirement so that partnerships could also benefit from the exemption
  • To reduce the substantial shareholding requirement which is currently 10% To extend the qualifying ownership period from 2 to 6 years.


The possible changes are not thought likely to have a significant impact on companies involved in oil and gas activities.  However, the removal of the trading requirement for investor groups would be a welcome removal of a level of uncertainty that can exist in certain transactions.

The consultation closes on 18 August 2016 and the government expects responses in the form of views to a number of options contained in the consultation document.

Download a copy of this Government Consultation Document

Double Taxation Treaty Passport (DTTP) scheme review

The consultation is aimed at renewing and extending the scope of the DTTP scheme. The government is not intending to change the existing legislation and instead it is asking for views on how the current administrative procedure could be simplified.

As background, borrowers in the UK are obliged to withhold income tax (WHT) at the basic rate (currently 20%) on payments of interest to overseas lenders (on loans of over a year in duration). If the lender is resident in a territory with which the UK has a tax treaty, the rate of WHT may  be reduced.

The DTTP scheme was introduced so that an overseas lender was not required to produce proof of residency and other official documents to HMRC for each new loan in order for the payments to be made without WHT or at a reduced rate under the Treaty. Under the scheme the overseas corporate lender applies for a “treaty passport” which can be used to make multiple loans to UK borrowers.

Currently the DTTP scheme applies only to corporate to corporate lending. The main proposal is to extend the scheme to encompass funds and partnerships including overseas partnerships.

The government is also seeking views on the operation of the renewal process as well as the application of sanctions for misconduct.

The consultation closes on 12 August 2016 and the government expects responses in the form of answers to a number of questions addressed in the consultation document.

Download a copy of this Government Consultation Document

Please contact us if you would like to discuss, require help with representations or have any questions.