Autumn Budget 2017: Corporation tax – depreciatory transactions

A depreciatory transaction is one that takes value out of shares, which might arise from the transfer of assets within a group for no or little cost. This can reduce the value of shares and often create a capital loss, but without any economic loss to the group. Current legislation requires that previous depreciatory transactions, undertaken within six years prior to disposal, are adjusted for in computing any loss on disposal.

The six-year limit on depreciatory transactions is to be removed for a disposal of company shares on or after 22 November 2017. Historic depreciatory transactions will therefore need to be considered when calculating the loss. For assets that are of negligible value, the commencement rule will apply to the date that the claim is made and not any earlier date that might be specified.

The measure is aimed at preventing companies waiting six years before making losses which have simply arisen from depreciatory transactions. There will be a need for companies to retain historic information of group asset transfers to quantify any future restrictions on losses.