UK Company Tax Planning

UK Corporation Tax Planning & Compliance Made Simple

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Capital gains group
– Holdco owns directly >75% or effective interest of >50%.
– Definition wider than group relief and a company can only be in one group at a time
– Assets transferred between members at nil gain/nil loss
– Degrouping charge arises when the company leaves the group <6 yrs & asset still owned by the departing company – Possbile to jointly elect to transfer only CURRENT year gains/loses – Pre-entry capital losses are generaly only used against pre-entry asset gains or used in pre-entry trade (anti-avoidance rules prevent capital losses buying – TAAR) – group treated as carrying on a single trade for roll-over relief purposes (hence gains can be rolled btwn group companies) – transfer of assets between group companies from capital asset to trading stock – chargeble gains arise first (acquisition at nil gain/loss & immediately sold at market value) and then trading profit. Election can be made to make all trading profit. – anti-avoidance provisions – concerning depreciatory transactions and value shifitng – which should be considered whenever a company is sold out of a capital gains group.

Depreciatory transactions
Issue – Companies can exploit gains grup to transfer assets no gain/no loss transfer of assets creating manufactured losses.
– These rules are designed to restrict losses arising on disposal of a subsidiary in certain circumstances. There are two legs to the rules: (1) those dealing with intra-group transfers of assets (TCGA 1992 s 176); and (2) those dealing with dividend stripping (TCGA 1992 s 177).
– The rules act so as to reduce that loss on a just and reasonable basis. This can include eliminating the loss completely but can never result in the loss becoming a gain.
– can only adjust a loss hence dont bother if there is a net gain

Value shifting rules
Value shifting adjustments can decrease a loss, turn a loss into a gain or increase a gain. Value shifting may apply where assets are transferred at below market value and cost or dividends are paid out of manufactured profits prior to the sale.

S179 TCGA 1992
Disposal of group company shares where assets where transferred into that company. S179 TCGA 1992 applies where:
(a) A acquires assets at a time when both A and B are members of the same group; and
(b) Both A and B re UK tax resident
(c) B Ltd ceases to be a member of the group within 6 years still holding the asset
(d) SSE does not apply

= Degrouping charge is added to the sale proceeds to compute the gain

Note re SDLT, group relief applies unless the group member leaves group within 3 years.