A Practical Guide for International Groups
Foreign-owned UK subsidiaries often generate tax losses during their early years of trading, particularly where the UK business is still being established or is receiving significant investment from its overseas parent.
A common question is whether those losses can be transferred to another UK company within the same international group.
In many cases, yes. A foreign-owned UK subsidiary can potentially surrender qualifying UK tax losses to another UK group company through the UK’s Group Relief rules. The fact that the ultimate parent company is based overseas does not, by itself, prevent two UK subsidiaries from being in the same group for UK Group Relief purposes. HMRC confirms that group relationships can be established by reference to companies resident anywhere in the world.
However, there are important conditions concerning ownership, the type and period of the losses, the companies involved and the amount that can be surrendered.
What Is UK Group Relief?
Group Relief allows qualifying companies within the same group to transfer certain tax losses and other eligible amounts between them.
The company with the loss is known as the surrendering company.
The company using the loss against its taxable profits is the claimant company.
For example:
Overseas Parent
↓ 100%
UK Subsidiary A — £500,000 tax loss
↓ Group relationship
UK Subsidiary B — £700,000 taxable profit
Subject to the relevant conditions, UK Subsidiary A may be able to surrender qualifying losses to UK Subsidiary B.
The relief is given by deducting the surrendered amount from the claimant company’s total profits.
Does Foreign Ownership Prevent Group Relief?
No.
This is an important point for international groups.
Consider:
US Parent
↓ 100%
UK Company A
and
UK Company B
The US company does not need to be UK resident for Companies A and B to potentially form part of the same UK Group Relief group.
HMRC states that group relationships can be established by reference to companies resident anywhere in the world. The key issue is whether the UK companies satisfy the relevant group relationship and UK-related requirements.
Therefore, the following structure can potentially qualify:
| Company | Location | Ownership |
| Parent Company | USA | 100% |
| UK Subsidiary A | UK | 100% owned by parent |
| UK Subsidiary B | UK | 100% owned by parent |
The common overseas parent does not, by itself, prevent Group Relief between the two UK subsidiaries.
The 75% Group Relationship
One of the central requirements is the 75% group relationship.
Broadly, companies can be members of the same Group Relief group where:
- One company is a 75% subsidiary of the other; or
- Both companies are 75% subsidiaries of a third company.
The 75% test is more than simply looking at the shareholding percentage.
The parent must generally have:
- At least 75% beneficial ownership of the ordinary share capital;
- At least 75% beneficial entitlement to profits available for distribution; and
- At least 75% beneficial entitlement to assets available for distribution on a winding-up.
This means that a company should not assume that a 75% shareholding automatically satisfies every Group Relief requirement.
The underlying ownership rights need to be reviewed.
Can One UK Subsidiary Transfer Losses to Another?
Yes, where the relevant conditions are satisfied.
For example:
UK Subsidiary A
Taxable loss: £300,000
UK Subsidiary B
Taxable profit: £500,000
If the companies are within the same qualifying group and the loss is eligible for Group Relief, Subsidiary A may surrender some or all of the available loss to Subsidiary B.
The claimant company receives the tax relief.
The loss is not transferred to the overseas parent.
This distinction is important:
UK Group Relief is generally about relieving qualifying losses against profits of another qualifying group company. It does not mean that the overseas parent can simply take the UK subsidiary’s losses and use them against its overseas profits.
What Types of Losses Can Be Surrendered?
There are different Group Relief rules depending on when the loss arose.
Current-Year Losses
Certain losses arising in the same accounting period can potentially be surrendered under the ordinary Group Relief rules.
Carried-Forward Losses
Since 1 April 2017, certain losses arising on or after that date can also potentially be surrendered under the rules for Group Relief for carried-forward losses.
This was an important change because previously carried-forward losses generally could not be surrendered as Group Relief.
However, the carried-forward loss rules contain additional restrictions and conditions.
Not every carried-forward loss can automatically be transferred.
Group Relief for Carried-Forward Losses
For losses incurred on or after 1 April 2017, certain carried-forward losses can be surrendered to another company in the same qualifying group.
The surrendering company must have an eligible loss or other amount, and the claimant and surrendering companies must satisfy the relevant group conditions.
The claimant must also satisfy specific requirements concerning the use of its own carried-forward losses before claiming carried-forward Group Relief.
This means that a company cannot simply choose any historical loss from its accounting records and transfer it to another group company.
The tax treatment of the specific loss needs to be established first.
A Key Restriction: The Claimant’s Own Losses
The carried-forward Group Relief rules contain an important restriction.
Broadly, a claimant company cannot use another group’s carried-forward losses where it has not first obtained full relief against its own total profits for the relevant carried-forward losses covered by the rules.
This means the order in which losses are used matters.
For example:
UK Company B
- Current-year profit: £1 million
- Own carried-forward losses: £600,000
- Losses available from another group company: £500,000
The company cannot simply choose which losses to use without considering the statutory ordering and limitations.
A calculation should therefore be performed before a Group Relief claim is submitted.
The 50% Restriction on Carried-Forward Losses
Another important consideration is the restriction on the use of carried-forward losses.
For companies with profits above the relevant deductions allowance, carried-forward losses generally cannot reduce taxable profits by more than the permitted amount.
Broadly, the rules allow the deductions allowance of up to £5 million for a group, together with relief for up to 50% of profits above that allowance.
The calculation can be affected by the wider group structure and the amount of profits and losses across the group.
This means a UK subsidiary with substantial carried-forward losses should not assume that all of those losses can immediately eliminate another company’s taxable profits.
Can Losses Be Transferred to the Foreign Parent?
This is where the distinction between Group Relief and international tax becomes particularly important.
A UK subsidiary generally cannot simply surrender its UK Corporation Tax losses to its overseas parent so that the parent can deduct them from its foreign taxable profits.
UK Group Relief is designed primarily to provide relief between qualifying companies within the UK tax system.
There are historic and highly restricted rules concerning losses of certain non-UK resident subsidiaries, but these are separate from the normal situation of a UK subsidiary with UK tax losses.
For most foreign-owned UK groups, the practical question is therefore:
Can the loss be surrendered to another qualifying UK company in the group?
rather than:
Can the UK loss be transferred to the overseas parent?
Example: Foreign-Owned UK Group
Consider the following structure:
US Parent
↓ 100%
UK Holdings Ltd
↓ 100%
↓ 100%
UK Trading Ltd A
UK Trading Ltd B
During the year:
UK Trading Ltd A
Loss: £400,000
UK Trading Ltd B
Taxable profit: £900,000
The US parent does not prevent the two UK companies from potentially being in the same Group Relief group.
If the relevant ownership and other statutory conditions are satisfied, UK Trading Ltd A may be able to surrender qualifying losses to UK Trading Ltd B.
The relief would reduce the taxable profits of UK Trading Ltd B, subject to the applicable Group Relief rules and limitations.
What If the UK Subsidiary Has Only One Company in the UK?
If a foreign parent owns only one UK company, there may be no other UK group company against which to surrender the loss.
For example:
US Parent
↓ 100%
UK Subsidiary
If the UK subsidiary generates a £500,000 Corporation Tax loss, there is no second UK group company to receive that loss.
The loss therefore needs to be considered under the ordinary UK rules, such as:
- Carrying the loss forward;
- Carrying qualifying trading losses back where available;
- Using losses against the company’s own profits under the applicable rules.
The overseas parent does not simply absorb the UK loss into its own tax computation.
Group Relief vs Carrying Losses Forward
A foreign-owned UK company should compare the available options rather than automatically surrendering every loss.
| Option | Potential result |
| Use loss against own current profits | Reduces the company’s own Corporation Tax |
| Carry qualifying loss forward | May reduce future taxable profits |
| Carry qualifying trading loss back | May generate relief against earlier profits |
| Surrender eligible loss to UK group company | Can reduce another UK company’s taxable profits |
| Transfer loss to overseas parent | Generally not available under normal UK Group Relief |
The most appropriate treatment depends on the type of loss, the accounting periods involved and the group’s wider tax position.
Common Restrictions and Issues
1. Ownership changes
Changes in ownership can restrict the use of carried-forward losses.
Specific anti-loss-buying rules can apply following a change in ownership, including restrictions on certain pre-change losses.
This is particularly relevant where an international group acquires an existing UK company with significant accumulated tax losses.
2. The loss may not be eligible
Not every accounting loss is a tax loss available for Group Relief.
The calculation must be based on the relevant Corporation Tax rules.
3. The companies must have an overlapping period
For carried-forward Group Relief, the surrendering and claimant companies must satisfy the relevant conditions during an overlapping period.
The existence of a group relationship at some point in the year does not automatically mean that every historical loss is available for surrender.
4. Permanent establishments can create additional restrictions
Special rules can apply where a company is resident in one country but operates through a permanent establishment in another.
These rules can restrict the amount of losses available for Group Relief.
5. Foreign losses are different
The rules for a foreign company surrendering a foreign loss into the UK are significantly more restrictive.
They should not be confused with the much more common situation where a UK-resident subsidiary is surrendering a UK Corporation Tax loss to another UK company.
How Is a Group Relief Claim Made?
The claimant company makes the Group Relief claim, while the surrendering company must consent to the surrender.
The claim can be for all or only part of the available loss.
HMRC’s guidance confirms that Group Relief is given by deducting the surrendered amount from the claimant company’s total profits.
A payment between group companies is not required for the Group Relief claim itself.
However, groups sometimes agree an internal payment or other commercial arrangement relating to the benefit of tax relief. Any such arrangement should be documented separately and reviewed for its accounting and tax treatment.
Documentation for Foreign-Owned Groups
International groups should maintain clear records supporting their Group Relief claims.
These may include:
- Group structure chart
- Shareholding information
- Articles and relevant ownership documents
- Corporation Tax computations
- Loss calculations
- Evidence of the accounting periods involved
- Details of previous loss claims
- Group Relief surrender agreements
- Claimant company profit calculations
- Evidence of overlapping periods
- Records of changes in ownership
- Supporting intercompany documentation
This is particularly important where the ultimate parent is outside the UK and the group structure involves several intermediate companies.
Practical Checklist for UK Subsidiaries
Before surrendering a UK tax loss, check:
- Both companies are within the relevant UK Group Relief rules
- The 75% group relationship has been established
- Share capital ownership has been reviewed
- Profit entitlement has been reviewed
- Asset entitlement has been reviewed
- The loss is a qualifying tax loss
- The relevant accounting periods have been identified
- The companies have the required overlapping period
- Any carried-forward loss restrictions have been considered
- The claimant’s own losses have been considered first
- The 50% carried-forward loss restriction has been considered where relevant
- Any ownership changes have been reviewed
- The Group Relief claim and consent are properly documented
Frequently Asked Questions
Can a foreign-owned UK subsidiary surrender tax losses?
Yes. A UK subsidiary can potentially surrender qualifying losses to another qualifying UK group company. The fact that the ultimate parent is overseas does not, by itself, prevent Group Relief.
Does the foreign parent need to be UK resident?
No. A group relationship can be established through companies resident outside the UK. The relevant UK companies must nevertheless satisfy the statutory Group Relief conditions.
Can two UK subsidiaries owned by the same foreign parent use Group Relief?
Potentially, yes. If both UK subsidiaries are qualifying 75% subsidiaries of the same parent and meet the other requirements, they can potentially be within the same Group Relief group.
Can a UK subsidiary transfer its losses to its overseas parent?
Generally, no. Normal UK Group Relief does not allow a UK subsidiary simply to transfer its UK Corporation Tax losses to an overseas parent for use against the parent’s foreign profits.
Can carried-forward losses be surrendered?
Yes, certain losses incurred on or after 1 April 2017 can potentially be surrendered under the Group Relief for carried-forward losses rules. Additional restrictions apply.
Does a 75% shareholding automatically qualify for Group Relief?
Not necessarily. The Group Relief rules also consider beneficial entitlement to profits and assets, in addition to ordinary share capital ownership.
Can all tax losses be transferred?
No. The type, period and circumstances of the loss must be considered. There are specific rules governing which losses can be surrendered.
What happens if the UK subsidiary leaves the group?
Leaving the group can affect the availability and use of losses, particularly carried-forward losses and losses affected by ownership changes. The timing of the transaction should therefore be reviewed before a sale or restructuring.
Conclusion
Foreign ownership does not prevent a UK subsidiary from participating in the UK’s Group Relief regime.
Where an overseas parent owns multiple UK companies, a loss-making UK subsidiary may potentially surrender qualifying losses to another UK group company with taxable profits.
The key considerations are:
- 75% group relationship
- Beneficial ownership and entitlement
- Type and age of the losses
- Current-year versus carried-forward losses
- Overlapping accounting periods
- Restrictions on carried-forward losses
- Changes in ownership
- The claimant company’s own losses
- Proper documentation and claims
For international groups, Group Relief can therefore be an important part of UK Corporation Tax planning, but the availability of relief should be established from the group’s actual legal structure and tax computations rather than simply from the fact that two companies have the same overseas parent.
How FKGB Accounting Can Help
FKGB Accounting works with foreign-owned UK companies and international groups on Corporation Tax, group structures, intercompany transactions, tax losses and UK compliance.
We can help review whether UK subsidiaries are within the same Group Relief group, identify potentially surrenderable losses and prepare the supporting calculations and Corporation Tax reporting.
To discuss your UK operations, book a meeting through our online calendar or contact us by email for a confidential consultation: David.levy@fkgb.co.uk
