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HMRC internal manual

Company Taxation Manual

Corporation Tax: management expenses: pension contributions: purchase of assets

Whilst it would be unusual for an investment company to buy another investment business, it could do so if, for example, it buys a property business from a third party and subsumes that into its own property business. It will take on all of the pension obligations to employees and former employees of that business and be able to deduct contributions as expenses of management as appropriate. In the particular case of a property business the expenditure may fall to be deducted as part of the Schedule A computation rather than as expenses of management. But none of it will be disallowed on the basis that it is capital in nature (see also BIM46025).

It is more likely that a company with investment business will buy shares in another company through a take-over or merger, the shares becoming an asset of its investment business. Where an investment company buys shares in another company then the pension obligations in respect of the employees and former employees of the company whose shares are bought will normally remain with that (latter) company. However, if the liability is, based on the facts, taken on by the purchaser either as part of the terms under which the investment is acquired or subsequently, and contributions are made in respect of its investment business, then those contributions will normally be deductible.