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HMRC internal manual

Offshore Funds Manual

From
HM Revenue & Customs
Updated
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Investors in non-reporting funds: computation of offshore income gains: previous no gain / no loss disposals - Regulation 40

When one group company disposes of an asset to another group company, there will not ordinarily be a chargeable gain or loss for corporation tax purposes on that disposal. This is the result of the no gain / no loss rule in section 171(1) TCGA1992 (for further details see the Capital Gains Manual available on the HMRC website.

The rule states that, ordinarily, if one member of a group disposes of an asset to another member of the group, and the asset remains within the scope of corporation tax on chargeable gains, the consideration is taken to be such an amount as results in no gain/no loss for the transferor. The no gain/no loss rule fixes both the consideration received for the asset by the transferor and the consideration given for the asset by the transferee. The transferor has neither a chargeable gain nor an allowable loss. The transferee effectively takes over the transferor’s capital gains cost, as augmented by indexation up to the time of the transfer under section 56(2) TCGA 1992.

This rule is modified by regulation 40 when the asset transferred is an interest in an offshore fund. Where that is the case, then the basic gain on the disposal is computed as if no indexation allowance had been available on any such earlier disposal and, subject to that, neither a gain nor a loss had arisen to the group member making the earlier disposal.

Example

Transfer of interest from Company A to Company B

(1) Market value of asset at transfer 250,000
     
  Acquisition cost (80,000)
  Indexation allowance to date of transfer (20,000)
  Indexed gain 150,000
  Deemed acquisition cost (no gain / no loss) 100,000
(2) Disposal of holding by Company B  
  Proceeds 275,000
  Deemed acquisition cost 100,000
  less  
  Indexation on previous no gain / no loss transfer (20,000)
    (80,000)
  ‘Basic gain’ 195,000