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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Company reconstructions: company: general

TCGA92/S139 applies to the disposal of chargeable assets by a company if a scheme of reconstruction includes the transfer of a company’s business. The section is very similar in operation to TCGA92/S171, which applies to the transfer of assets between members of the same group of companies. In both cases the transfer is treated as a no gain/no loss disposal. Where the shares and debentures were issued under the scheme before 17 April 2002 it was possible to transfer a business using the provisions of Section 139 only. This is no longer possible following the introduction of Schedule 5AA. Now, for any transfer of a business to fall within Section 139, there must be a scheme of reconstruction that meets the conditions of Sch 5AA and includes an issue of shares under Section 136.

Because the transfer is not treated as a disposal giving rise to a chargeable gain or allowable loss it is important the assets remain within the charge to UK tax in the hands of the recipient company. Therefore, there are a number of restrictions on the operation of TCGA92/S139.

Before 1 April 2000, the main mechanism for ensuring that assets remained within the charge to UK tax was a condition that both parties to a transfer under TCGA92/S139 had to be resident in the UK. This rule was changed by FA2000/SCH29/PARA5 with effect from 1 April 2000. For disposals on or after that date, TCGA92/S139 can apply (subject to satisfaction of the other conditions, see CG52803), provided, in relation to each company that is a party to the transfer, that:

  • the company is resident in the UK or,

for transaction before 31 December 2002 -

  • if it was non-resident, that any gains on disposals of the assets transferred were within the charge to corporation tax by virtue of TCGA92/S10 (3), because they were used or held for the purposes of a trade carried on in the UK by a branch or agency of the non-resident company.

For transactions after 31 December 2002 -

  • if it is non-resident, that any gains on disposals of the assets transferred would come within the charge to corporation tax by virtue of TCGA92/S10B, because they are used or held for the purposes of a trade carried on in the UK through a permanent establishment of the non-resident company.

The transfer of all or part of a business to another company may involve the transfer of some assets that are not chargeable assets, such as motor cars. This will not prevent TCGA92/S139 from applying to the chargeable assets transferred, provided the conditions for relief are satisfied in relation to the chargeable assets.

TCGA92/S139 is subject to anti-avoidance provisions and advance clearance procedures very similar to those which apply to TCGA92/S135 and TCGA92/S136.