S171 of the Taxation of Chargeable Gains Act 1992 provides for the movement of assets around a group of companies without any capital gains consequences. In such cases, the transferor will not have a chargeable gain or an allowable loss, and the transferee effectively takes over the transferor’s capital gains cost, augmented by indexation allowance as appropriate.
Therefore a chargeable gain or allowable loss will accrue only when an asset is disposed of outside the group (or the part of the group that is chargeable to corporation tax on chargeable gains) and that gain or loss will reflect the economic gain or loss throughout the group’s period of ownership.
Corporation tax group relief does not apply to allowable losses so the ability to make no gain/no loss transfers allows groups to bring together gains and losses so that only the overall net gains of a group are taxed. An election under TCGA92/S171A achieves the same effect without the need for any actual transfer.
Additionally, a transfer may also be effected through a dividend in specie where a dividend is declared in a given amount to be satisfied by the transfer of asset. The receipt of the dividend would not give rise to a chargeable gain on any capital distribution received.
No gain / no loss transfers do not apply in the following situations:
- where a group makes a deemed disposal of an asset for consideration received from another group company, or if the group company paying the consideration does not itself acquire an asset;
- disposal of a debt due from a member of a group of companies where the disposal is effected by satisfying the debt or part of it. Additionally, as there is no corresponding acquisition, the general rule set out above would not apply in any event;
- disposal of redeemable shares in a company. Again, this overlaps with the exclusion of cases where there is a disposal but no corresponding acquisition;
- relevant high value disposal which accrues to a company an ATED related gain or loss;
- disposal by or to an investment trust, which are exempt from capital gains. This prevents a group from taking advantage of the exempt status of an investment trust which is a group member by passing an asset between the investment trust and another group company as a preliminary to a third party disposal;
- disposal by or to a Venture Capital Trust, as with investment trusts, this prevents groups from taking advantage of the tax exempt status of a Venture Capital Trust;
- incorporated friendly societies, which prevents groups from taking advantage of the tax exemptions available to such societies;
- dual resident investment companies, to prevent the exploitation of tax reliefs available to dual resident companies;
- disposal by or to a Real Estate Investment Trust (“REIT”). As the no gain / no loss rule applies to disposals within separate groups, while in group REITs, tax exempt activities take place within a separate group for capital gains purposes;
- disposals that arise from the exercise of an option that was granted when the companies were not members of the same capital gains group;
- deemed disposal of shares in a company on receipt of a capital distribution, as this overlaps with the general exclusion where there is a disposal but no corresponding acquisition;
- transfer of an asset held by either the transferor or transferee within certain categories of the insurance business;
- share exchanges, where the transferor company is not treated as having made a disposal of shares;
- where the consideration for a disposal consists of compensation for damage to an asset, or for the asset’s destruction or loss of value, and the compensation is provided by a non-group member (i.e. insurer).