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HMRC internal manual

Capital Gains Manual

Depreciatory intra-group dividends: asset retention test

TCGA92/S31 (7)

This test is concerned to prevent duplication between asset-tier charges under the general capital gains rules and shareholder-tier charges under the value shifting provisions. In the example in CG46820, suppose that following the sale of the asset by Q to R, but before the sale of Q by P, R sold the asset to an unconnected third party. In that case R would have a capital gain by reference to the sale proceeds actually received and the base cost £20M (plus indexation) inherited from Q on the Section 171(1) transfer. Where there is such a charge at the asset tier it would be inappropriate for Section 31 to apply at the shareholder tier when P sells Q. Similarly, if Q had sold R before P sold Q, there would have been a degrouping charge on R under TCGA92/S178 or TCGA92/S179. The disposal consideration would be the market value of the asset £70M at the time of the Section 171(1) transfer and the base cost would be £20M (plus indexation). Here too the asset retention test prevents a duplicate charge.

Finance Act 2011 introduced a new Targeted Anti-Avoidance Rule for disposals of shares and securities by companies on or after 19 July 2011. See CG48500+.