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HMRC internal manual

Capital Gains Manual

Company reconstructions: company: TCGA92/S139: transfer of business

A scheme of reconstruction meeting conditions 1,2 and 3 of Sch5AA necessarily involves the transfer of the whole or part of a business, rather than a mere transfer of assets. A controlling holding of shares in a trading subsidiary is treated as being part of a parent company’s business (Sch5AA paragraph 4(3)). There may be a problem where the subsidiary is not trading, but only holding investments or property.

Please send a report and your file to Capital Gains Technical Group before you suggest Section 139 does not apply because there is no transfer of a business. Such an argument may not be compatible with accepting there is a scheme of reconstruction.

No consideration to transferor

TCGA92/S139 (1) (c) requires that the transferor company receives no consideration for the transfer except for the liabilities of the business being taken over. Therefore, a transfer at book value would fail this test even if consideration is not paid over, but left on account. The requirement that the transferor company receives nothing does not mean no consideration can be paid. The shareholders in the transferor company holding a class of share involved in the scheme of reconstruction will receive consideration in the form of an issue of shares by the transferee company. The issue would be covered by TCGA92/S136 and would compensate the shareholders for the fall in the value of their shares in the transferor company.

Effect and computation


If TCGA92/S139 applies the disposal by the transferor company is treated as being on a no gain/no loss basis. Indexation allowance is given on the disposal and forms part of the transferee’s acquisition cost, TCGA92/S56 (2), see CG45300+. See CG17700+ if the transferee disposes of the transferred asset on or after 30 November 1993 and the computation shows a loss after indexation. If the assets were held by the transferor at 31 March 1982 rebasing is not given on the disposal unless the transferor has made an election under TCGA92/S35 (5) out of the kink-test, Section 35(3)(d), see CG16760+.

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No claim required

If the relevant conditions are satisfied the application of TCGA92/S139 is mandatory and no claim is needed.