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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Rebasing for companies: halving relief for deferred gains pre-31/3/82: no gain/no loss transfers

TCGA92/SCH4/PARA5, TCGA92/SCH4/PARA6, TCGA92/SCH4/PARA7

It will sometimes be the case that, although the deduction that falls to be made on a disposal is not attributable to an asset held on 31 March 1982 by the person making the disposal, that person acquired it in a no gain/no loss transaction from someone who did. Also if a deferral is followed by a no gain/no loss transfer strictly no deduction attributable to the deferral falls to be made on a subsequent disposal. The relief is therefore extended to apply following any combination of deferrals and no gain/no loss transfers (TCGA92/SCH4/PARA5, TCGA92/SCH4/PARA6 and TCGA92/SCH4/PARA7). The deferrals are those listed in CG16988 and the no gain/no loss transfers are those listed in CG16880.

Example 1

A Ltd, B Ltd and C Ltd are all members of a group of companies.

A Ltd acquired an asset in 1978 and passes it to B Ltd in 1983. ICTA70/S273 (now TCGA92/S171) applied.

In 1985 B Ltd passed the asset to C Ltd. Again ICTA70/S273 applied.

In 1986 C Ltd sold the asset and reinvested the proceeds in an asset it purchased in 1987 and made a claim under CGTA79/S115 (now TCGA92/S152).

C Ltd sold the replacement asset in 2013 and claimed relief under TCGA92/SCH4.

A deduction falls to be made in computing the cost to C Ltd of the replacement asset by virtue of one of the enactments specified in Paragraph 2(5). That deduction is indirectly attributable to the gain made by A Ltd, but because A Ltd and C Ltd are different persons the `same person’ test in Paragraph 2(1)(c) is failed.

However for the purposes of Paragraph 2(1)(c) C Ltd is treated by paragraph 5 as having acquired the asset before 31 March 1982 because it was acquired in a specified no gain/no loss transfer from B Ltd, B Ltd acquired the asset in a specified no gain/no loss transfer from A Ltd, and there were no other disposals of the asset after 31 March 1982.

Therefore halving relief is available to C Ltd under TCGA92/SCH4/PARA1 (a).

Example 2

A Ltd, B Ltd and C Ltd are all members of a group of companies.

A Ltd acquired an asset in 1978 which it sold in 1983 rolling over the gain into a replacement asset it acquired in 1984.

In 1985 that asset passed to B Ltd. CGTA79/S273 (now TCGA92/S171) applied.

In 1990 B Ltd passed the asset to C Ltd and again ICTA70/S273 applied.

C Ltd sold the asset in 2013 and claimed relief under TCGA92/SCH4.

This is the first opportunity that a claim could be made because the transfer in 1990 was at no gain/no loss.

The deduction in the cost to A Ltd of the replacement asset was made by virtue of an enactment specified in Paragraph 2(5) and the relevant gain was on an asset A Ltd acquired before 31 March 1982. But on C Ltd’s disposal, no deduction falls to be made in its cost because its cost is `of such amount as would secure … neither a gain nor a loss…’.

However Paragraph 6 enables relief to be given in these circumstances because C Ltd’s acquisition was on a no gain/no loss transfer (Paragraph 6(1) (b)) and on B Ltd’s acquisition, which was also on a no gain/no loss transfer, a deduction was made in A Ltd’s cost (Paragraph 6(1)(c)).

Thus Paragraph 5(2) deems a deduction to have been made on C Ltd’s disposal, and halving relief is available to C Ltd under TCGA92/SCH4/PARA1 (a).

Example 3

A Ltd, B Ltd and C Ltd are all members of a group of companies.

A Ltd acquired an asset in 1978 and passed it to B Ltd in 1983. ICTA70/S273 (now TCGA92/S171) applied.

B Ltd sold the asset in 1984, rolling over the gain into a replacement asset it purchased in 1985.

The asset passed to C Ltd in 1987 and again ICTA70/S273 applied.

C Ltd sold the asset in 2013 and made a claim under TCGA92/SCH4.

Looked at in isolation, the test in Paragraph 2 is failed on two counts. First, the person selling the asset (C Ltd) did not acquire it before 31 March 1982; and secondly no deduction falls to be made in C Ltd’s cost.

But by combining the deeming provisions of Paragraph 5 and Paragraph 6 halving relief under TCGA92/SCH4/PARA1 (a) may be given. See examples at CG17002