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HMRC internal manual

Capital Gains Manual

The degrouping charge: value shifting

TCGA92/S179 (9)

TCGA92/S30 allows the consideration for the disposal of an asset to be increased for capital gains purposes where the asset has been reduced in value by a scheme or arrangements resulting in a tax-free benefit. For disposals before 19 July 2011 this rule is subject to special provisions dealing with groups of companies in TCGA92/S31 - TCGA92/S33.

For disposals on or after 19 July 2011 a new targeted anti-avoidance rule at TCGA92/S31 replaces TCGA92/S30 for disposals of shares or securities by companies.

Detailed instructions are at CG13260+, CG46800+ and CG48500+.

There may be cases where a scheme or arrangements reduce the value of an asset, and the disposal in relation to which the value shifting provisions need to be applied is not the direct disposal of the asset itself, or of shares in a company which directly or indirectly holds the asset, but is a deemed disposal for the purposes of the degrouping charge. An example would be where a group transfers an artificially depreciated asset to a newly incorporated company which leaves the group as a result of issuing shares to an unconnected third party purchaser.

In these circumstances the value shifting charge would, without special provision, be ineffective because TCGA92/S179 (3) and (6) provide that the consideration for the deemed disposal is the (depreciated) market value for all capital gains purposes. There is accordingly a special rule for the case where there is a deemed disposal for the purposes of the degrouping charge and, if there had been an actual as distinct from a deemed disposal, the consideration would have been increased by a just and reasonable amount under TCGA92/S30 or TCGA92/S31. In these circumstances TCGA92/S179 (9) provides that the market value consideration for the deemed disposal is to be increased by that amount.

Note that it was possible for a group to elect to apply the changes to degrouping charge rules made in Finance Act 2011 from 1 April 2011. Such an election does not affect the changes to the value shifting provisions which will in all cases take effect from 19 July 2011.