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

HMRC internal manual

General Insurance Manual

Repeal of equalisation reserves tax legislation for accounting periods ending on or after 1 January 2016: Transfer of the whole business or substantially the whole business: example

Where a joint election is made and the transferor is also ceasing to trade, FA12/S29(2) provides that the cessation provision at FA12/S26(6) do not apply. FA12/S26(6) would otherwise bring the remaining balance of the reserves into charge in the transferor.

In the year of transfer the receipt is apportioned between the transferor and the transferee on a time basis. Any remaining receipts in years subsequent to the year of transfer are treated as receipts of the transferee and the rules in FA12/S26-29 apply to the transferee as they would have applied to the transferor had the transfer not taken place.


The example is based on the following scenario;

  • The new rules are effective from 1 January 2016
  • Company A draws up its accounts to 31 December
  • Company B draws up its accounts to 31 December
  • No other elections have been made
  • As at 31 December 2015 Company A had equalisation reserves of £12m.
  • On 1 July 2018 Company A transfers its business in full to company B.


  • Company A has had historical relief for equalisation reserves so for each of the years in the 6 year transitional period, 01/01/2016 – 31/12/2021, it has a deemed receipt of £2m (£12m/6).
  • On the transfer of the business both Company A and company B make a valid joint election to allocate the receipt between them.


Company A has already been deemed to have received £2m for each of the years ended 31 December 2016 and 31 December 2017.

During the year ended 31 December 2018 company A will be deemed to receive £1m for the 6 months to 30 June 2018 and company B will be deemed to receive £1m for the 6 months to 31 December 2018.

Company B will then have a deemed receipt of £2m for the accounting periods ending 31 December 2019, 2020 and 2021 when the transitional period ends.

Failure to make an election would have resulted in Company A being deemed to have received the full remaining balance of £8m in the accounting period ended 31 December 2018 under the cessation rules at FA12/S26(6).