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HMRC internal manual

Capital Gains Manual

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No gain/no loss transfers in groups: exceptions

General exceptions

The no gain/no loss rule in TCGA92/S171(1) only applies where a member of a group of companies disposes of an asset to another member of the same group. The general requirement is therefore that there should be both a disposal by a group company and an acquisition by a group company.

The no gain/no loss rule does not apply where a group company makes a deemed disposal of an asset for consideration received from another group company, if the group company paying the consideration does not itself acquire an asset. Examples would be intra-group transactions involving capital sums derived from assets within TCGA92/S22, or capital distributions in respect of shares within TCGA92/S122, see CG45315.

If group company A owns shares in group company B, and company B purchases its own shares from A under Section 690 Companies Act 2006, there is a disposal by A of the shares in B but no corresponding acquisition of those shares by B. TCGA92/S171(1) accordingly does not apply. Further instructions on company own share purchases are at CG58600+.

If group company B issues shares to group company A, there is an acquisition of the shares by A but no disposal of the shares by B. This is in accordance with the general rule that a company issuing shares does not make any disposal of those shares. The no gain/no loss rule accordingly does not apply when one group company issues shares to another. The same considerations apply when one group company issues securities to another.

Specific exceptions, TCGA92/S171(2) to TCGA92/S171(5)

In addition to the general exclusion from TCGA92/S171(1) of cases where an acquisition in not matched with a corresponding disposal, or vice versa, TCGA92/S171(2) lists a number of specific exceptions to the no gain/no loss rule.

Debts - TCGA92/S171(2)(a)

The no gain/no loss rule does not apply to a 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. This specific exception puts the matter beyond doubt as for such a disposal there is no corresponding acquisition, so the general rule in TCGA92/S171(1) would not in any event apply.

The exclusion of debts from the no gain/no loss rule only applies to the disposal of the debt itself at the time it is wholly or partly repaid. If one group company transfers an asset to another in satisfaction of a debt, the no gain/no loss rule may apply separately to the asset transferred.

EXAMPLE

Company A lends money to company B in the same group. In satisfaction of the debt company B transfers an asset (land) to company A. If none of the specific exclusions from Section 171(1) applies, B disposes of the land to A at no gain/no loss, so that A effectively takes over the capital gains cost of the land to B. The no gain/no loss rule does not apply to A’s disposal of the debt.

Redeemable Shares - TCGA92/S171(2)(b)

The no gain/no loss rule does not apply to a disposal of redeemable shares in a company on the occasion of their redemption. This exception in TCGA92/S171(2)(b) overlaps with the exclusion of cases where there is a disposal but no corresponding acquisition.

The no gain/no loss rule does not apply to a relevant high value disposal on which there accrues to a company an ATED related gain or loss for the purposes of capital gains tax. See CG73600+ for detailed guidance on the capital gains tax charge on ATED related gains.

Investment Trusts - TCGA92/S171(2)(c)

TCGA92/S171(2)(c) prevents the no gain/no loss rule applying to a disposal by or to an investment trust within ICTA88/S842. The gains of an investment trust are exempt from the capital gains charge under TCGA92/S100(1). The exclusion of investment trusts from the no gain/no loss rule therefore prevents a group 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.

Where there has been a no gain/no loss transfer under Section 171(1) to a company which was not an investment trust at the time of the transfer but becomes an investment trust within 6 years of that time, see CTM47000 onwards.

Venture Capital Trusts - TCGA92/S171(2)(cc)

TCGA92/S171(2)(cc) prevents the no gain/no loss rule applying to a disposal by or to a Venture Capital Trust. As with investment trusts, see above, this prevents a group taking advantage of the tax exempt status of a Venture Capital Trust under TCGA92/S100(1).

Where there has been a no gain/no loss transfer under Section 171(1) to a company which was not a Venture Capital Trust at the time of the transfer, but it becomes a Venture Capital Trust from a time within six years of the transfer, see CG41520+.

Incorporated Friendly Societies - TCGA92/S171(2)(cd) and TCGA92/S171(5)

TCGA92/S171(2)(cd) prevents the no gain/no loss rule applying to a disposal on or after 17 March 1998 by or to an incorporated friendly society which is a `qualifying friendly society’ for the purposes of ICTA88/S461B. As with investment trusts, see above, this prevents a group taking advantage of the tax exemptions available to such societies under ICTA88/S461B.

Dual resident investment companies - TCGA92/S171(2)(d)

The no gain/no loss rule does not apply to a disposal to a dual resident investment company within CTA10/S109. This exception in TCGA92/S171(2)(d) was introduced as part of a package of measures designed to prevent exploitation of the tax reliefs available to dual resident companies. Further instructions on dual resident investing companies are at CT34500+.

Real Estate Investment Trust s - TCGA1992/S171(2)(da)

The no gain/no loss rule does not apply to a disposal by or to a Real Estate Investment Trust (REIT). This exception applies to a single company REIT that is the head of a CG group. See GREIT05020.

In a group REIT the tax exempt activities take place within a separate group for CG purposes. The no gain/no loss rule will apply to disposals within the separate groups. See GREIT05030.

Companies and groups were able to enter the REIT regime from 1 January 2007.

Disposal on exercise of an option - TCGA1992/S171(2)(db)

The no gain/no loss rule does not apply to a disposal that arises from the exercise of an option that was granted when the companies were not members of the same CG group. Therefore the normal rule for the disposal on the exercise of an option at TCGA1992/S144 applies. See CG12313+.

This applies to an exercise of an option on or after 6 March 2007.

Capital distributions - TCGA92/S171(2)

The no gain/no loss rule does not apply to a deemed disposal of shares in a company on receipt of a capital distribution within TCGA92/S122. This exception, in TCGA92/S171(2), overlaps with the general exclusion from no gain/no loss treatment of the case where there is a disposal but no corresponding acquisition.

If a capital distribution in respect of shares takes the form of the transfer of an asset from one group company to another, the exclusion of the capital distribution from the no gain/no loss rule only applies to the disposal of the shares themselves. See CG45315. The no gain/no loss rule may apply separately to the asset transferred. See Innocent v Whaddon Estates Ltd 55TC476, also the example in the section of this guidance page dealing with debts illustrates the same general principle.

Insurance companies - ICTA88/S440 (3)

ICTA88/S440(3) prevents the no gain/no loss rule applying to a transfer of an asset held by either the transferor of transferee for within certain categories of insurance business.

Share exchanges within a group - TCGA92/S171(3)

Where there is a share exchange within a group, such that the transferor company is not treated as having made a disposal of shares, then the no gain/no loss rule TCGA92/S171(1) does not apply to the acquisition of shares by the transferee company. TCGA92/S171(3) was introduced in 1988 to reverse the effect of the Court of Appeal decision in Westcott v Woolcombers Limited (60TC575). See CG45555 to 45561.

Compensation - TCGA92/S171 (4)

TCGA92/S171(4) prevents the no gain/no loss rule from applying where the consideration for a disposal consists of compensation for damage to an asset, or for an asset’s destruction or loss of value, and the compensation is provided by a person who is not a group member, such as an insurer. In this situation the disposal is treated as having been made to the person who ultimately bears the burden of providing the compensation.