Corporation Tax: capital gains depreciatory transactions within a group
Published 22 November 2017
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Who is likely to be affected
Any company that disposes of shares in a subsidiary company more than 6 years after a transaction that has materially reduced the value of those shares.
General description of the measure
This measure removes the time limit of 6 years for which a company must look back and adjust the capital loss claimed on sale of shares in a subsidiary company to account for earlier depreciatory transactions that have materially reduced the value of those shares.
A depreciatory transaction is one that takes value out of shares, which might be by transferring the assets of a company to another company within a group for no or little cost. This reduces the value of the shares but without any economic loss to the group. When the shares are disposed of (by liquidating the company or making a negligible value claim), the legislation requires that previous depreciatory transactions are adjusted for in computing any loss on disposal. Currently there is a time limit of 6 years, so that depreciatory transactions before that are not taken into account. Removal of the 6 year rule means that companies will need to consider the history of the shares and will be required to adjust for any prior depreciatory transactions when calculating a loss.
This measure will ensure companies cannot prevent the depreciatory transaction rules applying by simply holding onto a company that no longer has any value for 6 years before claiming an inflated amount of loss relief.
Policy objective
The government wants to prevent companies waiting until after the 6 year time limit has passed so that they can claim the loss that arose as a result of the earlier depreciatory transaction. Implementing this measure now will protect future revenue where the 6 years after a depreciatory transaction is yet to expire.
Background to the measure
The measure was announced at Autumn Budget 2017.
Detailed proposal
Operative date
The measure will have effect for disposals of shares in, or securities of a company made on and after 22 November 2017.
For assets that are of negligible value, the commencement rule will apply to the date that the claim is made and not any earlier date that might be specified.
Current law
Current law is in section 176 Taxation of Chargeable Gains Act (TCGA) 1992 and Schedule 9 to Finance Act 2011.
Proposed revisions
Legislation will be introduced in Finance Bill 2017-18 to remove the 6 year rule in section 176(1) of TCGA 1992, returning the statute to how it operated prior to the changes made by section 44 and Schedule 9 of FA 2011.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 |
|---|---|---|---|---|---|
| +5 | +10 | +10 | +10 | +10 | +10 |
These figures are set out in Table 2.1 of Autumn Budget 2017 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2017.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
The costing reflects a behavioural response whereby there might be an increase in tax planning activity by affected groups.
Impact on individuals, households and families
This measure has no impact on individuals or households as it only affects companies.
The measure in not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure does not have an equalities impact as it only affects those groups of companies that have made an earlier depreciatory transaction.
Impact on business including civil society organisations
This measure is expected to impact on those businesses who have disposed of shares in a subsidiary company. Businesses will incur a negligible one-off cost of familiarisation with the removal of the 6-year cap and negligible on-going costs associated with the need to look back further than 6 years. There is no impact on civil society organisations.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
There will be negligible impact on HMRC for this change.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Corey Herbertson on Telephone: 03000 542 955 or email: corey.herbertson@hmrc.gsi.gov.uk