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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Residence: dual resident companies: anti-avoidance - limitation of loss relief

Without the various other provisions listed at CTM34505 it would be possible for groups to avoid the effect of CTA10/S109 by transferring profits to a dual resident investing company to use up its losses without resorting to group relief. In order to keep the double deduction, the profits transferred to a dual resident investing company would have to be taxable only in one country. This could be achieved, as far as the UK is concerned, by transferring an asset or a trade in respect of which a capital gain or balancing charge has accrued over a period of time, to a dual resident investing company under provisions relating to groups. The recipient company then realises the capital gain or balancing charge by disposing of the asset or trade to a third party.


A, B and C are companies in a multinational group.

A is UK incorporated and UK resident.

B is a dual resident investing company and is US incorporated.

C is US incorporated and US resident.

A and B are members of a UK sub-group.

B and C are members of a US sub-group.

A and C each have profits of £100.

B has a loss of £100.

A has an asset on which a chargeable gain has accrued over a period of time. Without TCGA92/S171 (2), A could transfer the asset to B under the provisions of TCGA92/S171 on a no gain/no loss basis. B would immediately sell the asset to a third party and realise a chargeable gain of £100 liable to CT (ignoring indexation etc).

Then B could set its loss of £100 against the gain in accordance with the normal rules giving relief for charges, trading losses etc. As far as the United States sub-group is concerned, however, B would be treated as acquiring the asset from A at its current market value. So, any gain (or loss) on the subsequent sale of the asset outside the group would be negligible. B would therefore make a loss of £100 (or thereabouts) in United States tax terms which could be set against C’s profits. The group still would have got relief of £200 for B’s loss of £100.

But under TCGA92/S171 (2)(d) the benefit of TCGA92/S171 (1) is denied to A. This crystallises the chargeable gain in A rather than in B. So B is unable to use its loss of £100 in the UK. The exclusion from TCGA92/S171 only works in one direction, though, in relation to assets transferred to a dual resident investing company. The no gain/no loss basis still applies to a transfer of an asset from B to A.