Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
, see all updates

3rd Condition (Paragraph 4 Sch 5AA): Continuity of Business

As part of the scheme of reconstruction, the whole or substantially the whole of the business or businesses of the original company or companies must be carried on by a successor company or companies. For the purposes of the 3rd condition the definition of successor company (or companies) is extended to include the original company (or companies).

Where there is one original company involved in the scheme of reconstruction all or part of its business must be carried on by a different company as a result of the restructuring.

Where there is more than one original company involved in the scheme of reconstruction all or part of the business carried on by at least one of the original companies must be carried on by a different company as a result of the restructuring.

In deciding whether two or more successor companies carry on the whole or substantially the whole of the business or businesses of one or more original companies, paragraph 4(2) of Sch 5AA provides for the activities of the successor companies in question to be considered as a whole.

Example

Company A has 2 businesses, retail and manufacturing, and demerges the retail business to a new company, company B. The activities of the successor companies (companies A & B) together embrace the whole of the businesses of the original company, company A.

Paragraph 4(4) of Sch 5AA provides that the holding and management of assets that are retained by an original company for the purposes of a capital distribution as defined in TCGA92/S122, see CG57800+, are ignored for the purposes of the 3rd condition. (This is mainly of relevance where the scheme of reconstruction involves an investment trust or unit trust).

The meaning of business for these purposes is considered at CG52709.