On 11 July 2019 the UK government published a summary of responses to the consultation on the restriction of carried forward capital losses, which was held between 29 October 2018 and 25 January 2019. Interested parties submitting responses included accountants, tax specialists, law societies, trade associations and large businesses.

The consultation concerned reforms to the corporate capital loss regime to restrict the amount of capital gains that could be relieved by capital losses carried forward to 50%, subject to an allowance of GBP 5 million that would be shared with the corporate income loss restriction (CILR). The reforms when finalised will take effect from 1 April 2020.

Some commentators expressed concern about the timing of the introduction of the measure at a time when Brexit will potentially impact business competitiveness. Some parties therefore suggested that the government should delay or cancel the measure.

Other commentators suggested that the capital loss offset restriction should not be enacted owing to the nature of the tax treatment of capital disposals and the irregularity of disposals. Capital gains and losses actually arise throughout the life of an asset but tax is only charged in the year of disposal. This means that restricting loss relief can create unfairness.

The UK government intends to continue with the reforms and notes that the deductions allowance built into the legislation is designed to remove smaller companies from the scope of the measures so they will continue to use their allowable capital losses without restriction. Only larger businesses, which normally realise capital gains and capital losses on a more regular basis, will be subject to the legislation.

The original features of the measures including the implementation date, the GBP 5 million allowance and restriction of the offset of capital losses will remain unchanged. The UK government will however take measures to remove any unintended consequences of the measures and simplify the rules.

Following the consultation the government has published draft legislation on the capital loss restriction together with an explanatory note and a tax information and impact note (TIIN).