Change of company ownership and loss forfeiture

Q: How might this work on a sale?

Illustration only. A company that has made £600,000 of trading losses running a printing business is bought outright by a new owner on 1 July 2026. Within two years the new owner stops printing and uses the company to provide marketing consultancy to a new client base. There is a change in ownership, because one person acquired more than half of the shares. Moving from printing to consultancy is a major change in the services provided and in customers, inside the 5 year window. All £600,000 of losses carried forward at 1 July 2026 are cancelled, and if the new business makes a loss in a later year it cannot be carried back to the period before the sale. Had the new owner simply modernised the printing equipment and moved to bigger premises, SP10/91 suggests the losses would survive.

Q: What should buyers and advisers watch for?

Valuing losses in a deal. Losses should be treated as at risk if the buyer plans to change the business within five years. Changes by the seller. Restructuring in the three years before the sale counts towards the comparison. Dormant or dwindling companies. Condition B needs no later change in the trade at all. Asking HMRC for comfort. CTM06380 tells officers not to be drawn into advising on how a proposed transaction should be structured, so clearance is unlikely; the analysis has to stand on the facts. Other attributes. Similar rules restrict management expenses, property losses and capital losses after a change in ownership, so trading losses are not the only item to check. Where losses do survive, they remain subject to the corporate loss restriction, and in a group the shared deductions allowance needs a fresh look after the acquisition. Questions about losses after a sale often come up in an HMRC enquiry into the later return, as explained in our HMRC enquiry glossary. If HMRC opens a check into your return, tax investigation insurance pays your accountant's fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

A company’s carried forward trading losses are cancelled if there is a change in its ownership and, within a five year period beginning no more than three years before that change, a major change in the nature or conduct of its trade. They are also cancelled if ownership changes after the trade has dwindled to a small or negligible scale. The rule is in Part 14 of the Corporation Tax Act 2010 (CTA 2010), sections 673 and 674, and it also stops losses after the change being carried back to before it.

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What problem is this rule aimed at?

HMRC’s manual at CTM06305 describes the target as loss buying: acquiring a company wholly or partly for its unused trading losses rather than for the value of its trade or assets. The new owner typically brings new activity into the company, but in a way that makes it hard to show that the old trade stopped and a new one began. Without section 673, the company would keep its losses and set them against profits from the new activity. The rule is therefore relevant to any share purchase of a company with losses, not only to deliberate tax planning, because it applies whatever the motive.

When does section 673 apply?

Section 673 applies where there is a change in ownership of the company and either:

Condition A: within any period of 5 years that includes the change and begins no more than 3 years before it, there is a major change in the nature or conduct of a trade carried on by the company; or
Condition B: the change in ownership happens after the scale of the trade has become small or negligible and before any significant revival.

The 5 year window applies where both the change in ownership and the major change occur on or after 1 April 2017. Before that, the window was 3 years. Because the period can start up to 3 years before the sale, changes made by the seller in preparation for a sale can count, and a new owner who waits a couple of years before changing the business is still within reach. Section 673(4) also says the rule applies even if the change results from a gradual process that began before the 5 year period.

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What counts as a change in ownership?

The test is in section 719. CTM06340 summarises it as more than half of the ordinary share capital changing hands, in one of three ways:

a single person acquires more than half of the ordinary share capital;
two or more persons each acquire at least 5% and together more than half; or
two or more persons acquire holdings that together exceed half, ignoring holdings under 5% unless they top up an existing holding to 5% or more.

Holdings of connected persons are added together. Acquiring exactly 50% is not enough. Shares inherited or received as an unsolicited gift are not acquisitions, and shares bought under an option are treated as acquired when the option was granted. Section 720 allows acquisitions to be compared over a three year period, so spreading purchases does not avoid the test, and section 721 lets HMRC look at voting power and other rights where share capital has been manipulated. A change in ownership of a parent company is a change in ownership of its subsidiaries, but under section 724A inserting a new holding company at the top of a group is not, if the shareholders and their proportions stay the same (CTM06355). Our page on share for share exchanges covers the capital gains side of such a reorganisation.

What is a major change in the nature or conduct of a trade?

Section 673(4) says it includes a major change in the type of property dealt in or services or facilities provided, and a major change in customers, outlets or markets. HMRC’s Statement of Practice 10 (1991) adds that it will also look at factors such as business premises, suppliers, management, staff, methods of manufacture and pricing or purchasing policies, comparing conditions at any two points in the relevant period. Following Willis v Peeters Picture Frames Ltd and Purchase v Tesco Stores Ltd, a change must be more than significant but need not be fundamental.

SP10/91 says not of itself a major change	SP10/91 says a major change
Moving production from three old factories to a new one	A saloon car dealership switching to tractors
Replacing enamel with plastic, or mechanical with electronic parts	A pub converted to a discotheque in the same premises
Switching car dealership franchise to another make serving the same market	Fattening pigs for owners switching to buying, fattening and selling pigs
Dropping the minor product line to concentrate on the main one	Switching from quoted shares to rental property investment

HMRC also says it will not regard changes made to improve efficiency, keep pace with technology or management techniques, or rationalise a product range as major changes in themselves. Whether a business has instead ceased one trade and started another is a separate question, touched on in our page on the badges of trade.

What exactly is lost?

Section 674 sets out the effect. Where section 673 applies:

trading losses made in periods beginning before the change cannot be carried forward against trade profits of periods ending after it, whether under section 45 or 45B (same trade) or section 45A (total profits);
losses made in periods ending after the change cannot be carried back under section 37 to periods beginning before it.

The accounting period in which the change happens is split into two notional periods, before and after the change, and profits or losses are apportioned on a time basis unless that would be unjust or unreasonable (CTM06420). HMRC gives the example of a large loss in the year of change followed by profits injected by the new owner before the year end, where time apportionment would let the buyer benefit from pre change losses. For how the losses would otherwise have been used, see our page on company trading losses.

Are there wider rules for changes after 1 April 2017?

Yes. Because losses made from 1 April 2017 can be used against total profits and surrendered between group companies, Finance (No. 2) Act 2017 added Chapters 2A to 2E of Part 14 (CTM06705). Chapter 2A applies where there is a major change in the business of the company, not just its trade. Under section 676AC that includes a major change in the scale of a business and beginning or ceasing a trade or business. Where it applies, losses incurred from 1 April 2017 but before the change cannot be set against affected profits, broadly those relating to the change and arising in the five years after it (CTM06745). Other chapters restrict group relief for carried forward losses (Chapter 2C), relief after a transfer of a trade (Chapter 2E) and use of losses against gains on assets brought into the company (Chapters 2B and 2D).

How might this work on a sale?

Illustration only. A company that has made £600,000 of trading losses running a printing business is bought outright by a new owner on 1 July 2026. Within two years the new owner stops printing and uses the company to provide marketing consultancy to a new client base.

There is a change in ownership, because one person acquired more than half of the shares.
Moving from printing to consultancy is a major change in the services provided and in customers, inside the 5 year window.
All £600,000 of losses carried forward at 1 July 2026 are cancelled, and if the new business makes a loss in a later year it cannot be carried back to the period before the sale.

Had the new owner simply modernised the printing equipment and moved to bigger premises, SP10/91 suggests the losses would survive.

What should buyers and advisers watch for?

Valuing losses in a deal. Losses should be treated as at risk if the buyer plans to change the business within five years.
Changes by the seller. Restructuring in the three years before the sale counts towards the comparison.
Dormant or dwindling companies. Condition B needs no later change in the trade at all.
Asking HMRC for comfort. CTM06380 tells officers not to be drawn into advising on how a proposed transaction should be structured, so clearance is unlikely; the analysis has to stand on the facts.
Other attributes. Similar rules restrict management expenses, property losses and capital losses after a change in ownership, so trading losses are not the only item to check.

Where losses do survive, they remain subject to the corporate loss restriction, and in a group the shared deductions allowance needs a fresh look after the acquisition. Questions about losses after a sale often come up in an HMRC enquiry into the later return, as explained in our HMRC enquiry glossary.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.