Section 78 Finance Act 2005
Understanding Section 78 of the Finance Act 2005
Section 78 of the Finance Act 2005 introduced significant changes to the UK’s tax legislation, primarily targeting tax avoidance schemes involving the creation or exploitation of tax losses. Its core purpose was to prevent corporations from artificially generating or importing losses to offset their taxable profits, thereby reducing their tax liabilities unfairly. The section addresses situations where a company obtains a tax advantage by acquiring a company with pre-existing losses, or by injecting assets into a company to inflate its losses.