Introduction: Group Relief and the American Owner of a UK Group
Group relief allows one UK company to surrender its losses to another company in the same 75% group, and for American owners of several British companies it is the single most valuable corporation tax planning tool available. However, it also carries a US tax cost that almost no British adviser will mention. Furthermore, that cost frequently exceeds the UK saving. Therefore, you need to understand both sides before you sign the claim.
At TaxYork, we act for American entrepreneurs, fund principals and company owners who hold two, three or a dozen UK companies. Consequently, we see this trap constantly. Your UK accountant surrenders a loss, saves you £100,000 of corporation tax, and unknowingly hands the Internal Revenue Service a larger bill. Additionally, the damage often surfaces years later, when your foreign tax credit position collapses.
What Group Relief Actually Does
Group relief moves a loss from a company that cannot use it to a company that can. Specifically, the loss-making company becomes the surrendering company, and the profitable company becomes the claimant company. Accordingly, the claimant reduces its taxable profits by the amount surrendered, and the group pays less corporation tax overall.
The mechanism sits in Part 5 of the Corporation Tax Act 2010. Moreover, a parallel regime in Part 5A governs carried-forward losses. Both regimes matter to you, and they operate under different rules.
Why the Two Tax Systems Diverge
Britain treats your companies as a group. Conversely, America treats each one as a separate controlled foreign corporation. Therefore, a surrender that Britain recognises simply does not exist in the eyes of the IRS.
That single mismatch drives everything that follows. Notably, it does not reduce the loss you can use in America. Instead, it moves where the UK tax sits, and the US credit rules care intensely about location.
The 75% Test: Which of Your UK Companies Form a Group
The 75% test decides whether two companies can share losses at all. Specifically, one company must be a 75% subsidiary of the other, or both must be 75% subsidiaries of a third company. Furthermore, that third company may sit anywhere in the world, including in Delaware or Wyoming.
Many American owners assume their UK companies fall outside the rules because the parent is a US corporation. In fact, the opposite is true. Consequently, a US holding company can create a UK group relief group without itself being within the charge to UK corporation tax.
Ordinary Share Capital and the Equity Holder Conditions
Holding 75% of the shares is necessary but not sufficient. Additionally, the parent must be entitled to 75% of the profits available for distribution to equity holders, and to 75% of the assets on a winding up. HMRC sets out the mechanics in its Company Taxation Manual.
These economic tests catch structures that look compliant on paper. For example, a preference share issued to an outside investor can strip the parent below the asset threshold. Therefore, we review the articles and any shareholder agreement before we rely on a group.
Indirect Holdings Through Your US Parent
Ownership may run directly or indirectly. Accordingly, you multiply the percentages down the chain. A US parent owning 80% of UK Holdco, which owns 90% of UK Tradeco, holds 72% of Tradeco indirectly.
That 72% fails the test. However, UK Holdco and UK Tradeco still form a group between themselves at 90%. Consequently, the losses can move between those two companies even though the American parent cannot pull them further.
Consortium Relief When You Own Less Than 75%
Consortium relief fills part of the gap below 75%. Specifically, it applies where companies each holding at least 5% together own at least 75% of another company. Moreover, each consortium member claims a share of the losses proportionate to its interest.
American investors in UK joint ventures use this route regularly. Nevertheless, the calculations are harder, and the anti-avoidance provisions are tighter. Therefore, we model consortium claims separately from ordinary group relief.
Which Losses You Can Surrender and When
Not every loss qualifies, and the distinction between current-year and carried-forward losses is fundamental. Furthermore, the two regimes carry different restrictions and different planning consequences.
Current-Year Losses Under Part 5
Current-year trading losses surrender freely within the group. Additionally, you may surrender excess capital allowances, excess management expenses, excess property business losses and qualifying charitable donations. Importantly, current-year losses face no profit cap.
As HMRC explains in its guidance on claiming a corporation tax loss, the maximum you can surrender equals the lower of the surrendering company's available loss and the claimant company's available profit. Consequently, a large loss cannot create a repayment in the claimant company. Instead, any excess remains stranded and carries forward.
Carried-Forward Losses Under Part 5A
Losses arising on or after 1 April 2017 can also be surrendered after they have been carried forward. Specifically, sections 188CB and 188CC of the Corporation Tax Act 2010 govern these claims. However, the surrendering company must first be unable to use the loss itself.
HMRC explains the ordering rules and the interaction with prior surrenders in its guidance on prior surrenders. Moreover, pre-2017 losses cannot travel this route at all. Therefore, the vintage of your losses genuinely matters.
The Deductions Allowance and the 50% Restriction
Carried-forward losses meet a hard cap. Specifically, a group shares a single £5 million deductions allowance across each twelve-month period, and profits above that allowance can only be reduced by 50% using carried-forward losses. HMRC sets out the restriction in its loss reform guidance.
A nominated company allocates that allowance among group members. Critically, a company that fails to specify its allowance suffers the full 50% restriction. Consequently, we treat the nomination as a diary item rather than an afterthought.
Claiming Group Relief: Mechanics, Deadlines and Payments
A valid claim needs consent, timing and paperwork. Furthermore, group relief is claimed on the corporation tax return rather than by letter, and a missed deadline is usually fatal.
The Two-Year Claim Window
You claim group relief on the CT600 within two years of the end of the accounting period. More precisely, the deadline runs to the first anniversary of the filing date for the return, which will not fall earlier than two years after the period end. HMRC confirms the position and the limited scope for late claims in its time limit guidance.
You may also amend a claim within that window. Accordingly, a group relief position is not fixed on the day you file. Nevertheless, HMRC admits late claims only in narrow circumstances, so we never rely on that discretion.
Overlapping Periods and Part-Year Membership
Companies rarely share identical accounting dates. Therefore, the legislation restricts relief to the overlapping period, which is the part of the accounting periods during which both companies were group members. Additionally, you time-apportion the loss and the profit across that overlap.
Acquisitions and disposals complicate this further. For instance, buying a UK company in month seven leaves only five months of overlap. Consequently, the surrenderable loss shrinks accordingly, and we calculate it before completion rather than afterwards.
Payments for Group Relief Under Section 183
The claimant company usually pays the surrendering company for the loss. Moreover, section 183 of the Corporation Tax Act 2010 makes that payment neutral for UK corporation tax, provided it does not exceed the amount of the loss surrendered. It is neither taxable income nor a distribution.
Commercially, groups often pay 25% of the loss, reflecting the corporation tax saved at the main rate of corporation tax. However, the US has no equivalent provision. Therefore, that cash movement between two controlled foreign corporations must be characterised under American principles, and it affects earnings and profits on both sides.
The US Tax Consequence Nobody Warns You About
Here is where British advice runs out. Specifically, group relief reduces the UK tax paid by your profitable company without reducing that company's income for US purposes. Consequently, its effective foreign tax rate collapses.
Every top-ranking UK guide to group relief omits this entirely. Nevertheless, for an American owner it is the most financially significant feature of the whole regime.
Why Group Relief Collapses Your Effective UK Tax Rate
Consider the arithmetic. Your profitable company earns £1,000,000 and would pay £250,000 of corporation tax at 25%. Additionally, your loss-making company surrenders £400,000, so the UK bill falls to £150,000.
America does not recognise that surrender. Therefore, the profitable company still has roughly £1,000,000 of tested income, but only £150,000 of foreign tax sits against it. Accordingly, its effective foreign tax rate falls from 25% to 15%.
The High-Tax Exclusion You Just Lost
That rate drop matters enormously. Under the One Big Beautiful Bill Act, tested income escapes the net CFC tested income regime only where the effective foreign rate exceeds 18.9%. Consequently, a company taxed at 25% comfortably qualifies, while the same company at 15% does not.
Group relief therefore pushes income that was previously excluded straight back into the NCTI net. Moreover, the loss-making company already produces a tested loss that reduces your aggregate inclusion anyway. In substance, you surrendered the exclusion and gained nothing.
We covered the same mechanism in our analysis of how UK reliefs break the high-tax exclusion. Similarly, research and development claims and Patent Box elections drag the rate below the threshold. Group relief simply does it faster.
Section 960, Form 1118 and the Individual Owner's Problem
Corporate US shareholders claim a deemed-paid credit for foreign taxes attributable to tested income, now at 90% following the reduction in the haircut. However, the credit follows the tax actually paid. Therefore, cutting the UK bill by £100,000 cuts the creditable pool by the same amount, and you report the result on Form 1118 alongside Form 8992.
Individual American owners face a harsher outcome. Specifically, an individual gets no deemed-paid credit at all without a section 962 election. Consequently, the UK tax saved by group relief simply vanishes from your US return, while the inclusion remains. We explain the election in detail in our guide to Form 8992 and NCTI.
A Worked Case Study: Two London Companies, One American Owner
Consider Daniel, a US citizen living in Kensington. Specifically, he owns 100% of two UK companies through a Delaware holding company. Furthermore, his consultancy company earned £1,200,000 in the year to 31 March 2026, while his technology company lost £500,000.
The UK Result
The two companies form a 75% group through the common Delaware parent. Therefore, the technology company surrenders its £500,000 current-year trading loss. Accordingly, the consultancy company reduces its taxable profits to £700,000.
Corporation tax falls from £300,000 to £175,000. Consequently, Daniel's UK adviser reports a £125,000 saving and closes the file. Additionally, the consultancy pays the technology company £500,000 under section 183, which the UK ignores entirely.
The US Result
America sees two separate controlled foreign corporations, each reported on Form 5471. Notably, the consultancy still has approximately £1,200,000 of tested income, carrying only £175,000 of UK tax. Therefore, its effective rate is 14.6%, well below the 18.9% threshold.
Before the surrender, the consultancy sat at 25% and qualified for the high-tax exclusion. Consequently, its income stayed outside NCTI altogether. After the surrender, roughly £1,200,000 of tested income enters the regime, reduced by the technology company's tested loss to around £700,000 of net inclusion.
Daniel is an individual, so he claims no deemed-paid credit without a section 962 election. Therefore, he faces US tax on £700,000 of income that carried no US charge the previous year. Ultimately, his £125,000 UK saving triggered a materially larger American liability.
The Fix
We modelled three alternatives before Daniel filed. Firstly, restricting the surrender to £150,000 kept the consultancy above 18.9% while still using part of the loss. Secondly, a section 962 election unlocked the deemed-paid credit at corporate rates. Thirdly, carrying the technology loss forward preserved the exclusion entirely.
Daniel chose the partial surrender combined with a section 962 election. Consequently, he retained most of the UK benefit and eliminated the American exposure. Importantly, the decision had to be made before the CT600 was filed, not afterwards.
How TaxYork Can Help
We prepare US and UK tax returns for American owners of British companies, and we run both calculations together rather than in sequence. Furthermore, we model the group relief decision before your CT600 is submitted, while the position remains changeable.
Integrated UK and US Compliance
Our team handles the corporation tax computations, the group relief claims and the American reporting from one file. Therefore, nothing falls between two advisers. Additionally, we prepare the US tax returns for expats that carry the consequences of every UK election you make.
Modelling Before You Surrender
We calculate the effective foreign tax rate on each company before any surrender. Consequently, you see the NCTI impact in advance. Moreover, we identify the optimal partial surrender that captures the UK saving without breaching the high-tax threshold.
Treaty and Credit Planning
Where a charge is unavoidable, we minimise it. Specifically, we optimise your foreign tax credit position and apply the treaty correctly through our tax treaty optimisation service. Our clients also rely on our work on associated companies and the small profits band, which interacts directly with group relief.
Conclusion
Group relief remains an excellent UK planning tool, and American owners should absolutely use it. However, you must never treat it as a purely British decision. Furthermore, the surrender that saves corporation tax can simultaneously destroy your high-tax exclusion and shrink your creditable foreign taxes.
The arithmetic is entirely predictable, which means it is entirely manageable. Therefore, model both jurisdictions before you claim, size the surrender deliberately, and consider a section 962 election where an individual holds the shares. Ultimately, group relief should be calculated on a transatlantic basis, because that is where you actually pay tax.
Professional bodies including the Chartered Institute of Taxation, the ICAEW and the ACCA publish extensive UK guidance, while HMRC maintains the underlying manuals. Similarly, the AICPA covers the American compliance side. Nevertheless, none of that material addresses the interaction between the two, which is precisely the gap we fill.
Contact Us
Speak to us before you file your next CT600. Our specialists model the UK saving and the US cost together, so you make the surrender decision with complete information. Additionally, we handle the resulting American reporting from start to finish.
Email hello@taxyork.com or call 020 3488 8606 to book a consultation. Furthermore, you can explore our full range of cross-border planning services online. We act for company owners across London and throughout Britain.
Disclaimer
This article provides general information about group relief and related US tax rules as at September 2026. It does not constitute tax advice, and you should not act on it without professional guidance tailored to your circumstances. Tax legislation changes frequently, and the interaction between UK and US rules depends entirely on your specific facts. TaxYork accepts no liability for any action taken in reliance on this article. Please contact us for advice on your own position.