Corporation Tax Act 2010 section 696

Restriction on debits to be brought into account

Section 696 restricts the loan relationship debits a company can use after a change in ownership, to prevent those debits from sheltering gains that arise on assets transferred within a group.

• After a change in company ownership, non-trading loan relationship debits are capped at the level of the company's modified total profits for the accounting period
• The restriction only applies where a chargeable gain or non-trading chargeable realisation gain is included in the company's total profits for the period in which the gain accrues
• Modified total profits means total profits less the relevant gain itself and less any other available reliefs, but ignoring any non-trading deficit set-off claim for the deficit period
• Any debits disallowed in one period because of this cap can be carried forward and used in the next period, subject to the same restriction being applied again in that next period