UK Company Tax Planning

UK Corporation Tax Planning & Compliance Made Simple

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Capital gains group
A capital gains group exists where a company has a 75% direct (and 51% indirect) ownership of the ordinary share capital of its subsidiaries.

If capital gains group exist:
-Chargeable assets are transferred between group companies at no gain, no loss. This is automatic and no election is required. S171 TCGA
-An election can be made to transfer the whole or part of a chargeable gain or loss from one group company to another.S171A TCGA
-All of the companies in the group are treated as a single company for the purposes of rollover relief.(hence gains can be rolled btwn group companies)
-In addition, intangible fixed assets are transferred at a value that gives rise to neither a profit nor a loss. This is automatic and no election is required.

Companies resident overseas are included within a capital gains group. However, the advantages available to such groups are restricted to companies resident in the UK or companies resident overseas which have a permanent establishment in the UK.

Stamp duty land tax or stamp duty tax Group
A capital gains group exists where a company has a 75% direct (and 75% indirect) ownership of the ordinary share capital of its subsidiaries.if this exists no stamp duty tax is chargeable.

Degrouping charges – S179 TCGA 1992
Degrouping charge arises when the company leaves the group <6 yrs & asset still owned by the departing company.Degrouping charge is added to the sale proceeds of the company selling the shares to compute the gain. Note de-grouping charge for IFA are bourne by the company leaving the group. A joint election can be made to transfer the IFA degrouping charge to other group companies – treated like any other income but not capital. Rollover relief is also available for IFA hence it makes sense to make that joint election.

In cases where shares are sold together with previously transferred assets and where SSE applies, the exemption also applies on degrouping charge.

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

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 capital asset to trading stock
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.

Depreciatory transactions
Issue – Companies can exploit gains group 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.

Substantial shareholding exemption
Any gain will qualify for the substantial shareholding exemption (SSE) (or an allowable loss will be ignored) if the conditions as set out below are met.
– the investor company making the disposal must be a trading company or a member of a trading group (>51%), and
– the investee company must be a trading company or the holding company of a trading group (or subgroup), and the investing company held a ‘substantial shareholding’ (broadly, at least a 10% interest) investee company, and
– the shares were part of a total holding of at least 10% (group companies can aggregate holdings) held for a continuous 12 month period beginning not more than two years before the disposal. If the shares are disposed of piecemeal then provided that this condition is met, SSE exemption applies
– the exemption does not apply if the transaction would otherwise be regarded as a nil gain/nil loss disposal;
– The trading requirement means no substantial non-trading activities or assets – normally accepted as
20% by market value or turnover.

The exemption is automatic and a claim does not need to be made;

Capital gains on non-wasting chattels (life >50yrs) eg painting
if <£6,000 - no cgt ; if cost> £6,000 assume proceeds of £6,000 (but cannot turn loss into gain)
if proceeds are between £6,000 – £15,000, then max cgt is 5/3 of gross proceeds less £6,000
If more than £15,000 – normal cgt