Transfer losses from one company to another ?

Transfer losses from one company to another ?

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Company A is making losses and the owner wants to start another  a new company (company B) in the same trade.  Are there any instances where Company A can transfer losses to Company B

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By johngroganjga
01st Jul 2014 14:38

Not unless they are both in a 75% group when the losses are incurred, and then only against profits made by the claimant company in the same period.  From what you say it is already too late for that.

But why does your client want to start a new company?  Surely the existence of the tax losses alone is a an excellent reason for putting the future profits in the same company.  

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By Paul Soper
01st Jul 2014 14:46

Oh yes you can

Where the trade of company A is transferred to company B then the losses of company A can be transferred to company B provided that there is a common ownership of at least 75% and the successor company carries on the same trade, sometimes referred to as hiving off.  The danger is that if company A is left as a net debtor (and this can include inter-group indebtedness which may never be intended to be repaid) then the loss available for transfer is restricted on a pound for pound basis.  This seemingly generous relief is actually an anti-avoidance provision to prevent company A claiming terminal loss relief by forcing it to carry over the losses to the successor.

Why would you want to close down company A? It could well have a balance sheet showing significant losses, negative balances etc, that no bank would lend on, but by hiving off the activity into a new company bankers and others may be prepared to lend or invest.

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Replying to LangdonHamblin:
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By sash100
02nd Jul 2014 00:25

John maybe right

Paulsoper wrote:

Where the trade of company A is transferred to company B then the losses of company A can be transferred to company B provided that there is a common ownership of at least 75% and the successor company carries on the same trade, sometimes referred to as hiving off.  The danger is that if company A is left as a net debtor (and this can include inter-group indebtedness which may never be intended to be repaid) then the loss available for transfer is restricted on a pound for pound basis.  This seemingly generous relief is actually an anti-avoidance provision to prevent company A claiming terminal loss relief by forcing it to carry over the losses to the successor.

Why would you want to close down company A? It could well have a balance sheet showing significant losses, negative balances etc, that no bank would lend on, but by hiving off the activity into a new company bankers and others may be prepared to lend or invest.

I think John is right that Company B need to be in existence at the time of the losses which isn't the case.

They want to close down Company A  (or make it dormant) as apart from losses it has a poor credit rating.  The main reason is they just want a fresh start with a new company due to past problems. I have advised them for various reasons why setting up  a new company may not be a good idea but they are not convinced.

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By User deleted
02nd Jul 2014 09:36

John and Paul ...

... are both right. Because they're talking about different treatments of the losses.

(Though strictly Paul's answer is more relevant since it deals with the transfer of losses, which was the question asked, whereas John is talking about offset of the losses.)

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Replying to Tim Vane:
By ShirleyM
02nd Jul 2014 07:54

John, Paul & Ringo ....

Ringo wrote:

... are both right. Because they're talking about different treatments of the losses.

(Though strictly Paul's answer is more relevant since it deals with the transfer of losses, which was the question asked, whereas John is smply talking about offest of the losses.)

Sorry! Way off topic, but I couldn't resist :)

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Portia profile image
By Portia Nina Levin
02nd Jul 2014 08:26

John, Paul & Ringo

There's someone missing there.

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By ShirleyM
02nd Jul 2014 09:30

Yep, George was booted from AWeb

I do miss him :)

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