21 March 2000
MODERNISATION OF RULES FOR CHARGEABLE GAINS OF COMPANIES
Summary of measures
From 1 April companies will be able to transfer assets on a tax neutral basis in a wider range of circumstances than presently.
The changes, which reflect the increasing globalisation of businesses, will give companies greater flexibility in how they structure their businesses without incurring tax charges while assets remain within the same overall ownership and within the UK tax net. Together with the changes to corporation tax group relief, also announced today, these reforms will allow companies to organise themselves to meet their commercial needs.
1. From 1 April 2000 it will be possible for companies to transfer assets on a no gain/no loss basis in a wider range of circumstances than is possible under the current rules.
2. Companies are presently able to transfer assets from one to another on a no gain/no loss basis when they are members of the same group of UK resident companies. In future, membership of a group will no longer be restricted to UK resident companies. Provided the assets remain within the scope of corporation tax on chargeable gains, no gain/no loss transfers will be possible within the worldwide group of companies.
3. It will be possible to transfer an asset on a no gain/no loss basis between two UK resident companies with a common non resident parent company. It will also be possible to transfer assets on a no gain/no loss basis between a UK resident company and a non resident company within the same worldwide group carrying on a trade in the UK through a branch or agency where the asset remains within the charge to corporation tax on chargeable gains.
4. The rules for relieving chargeable gains where there is a scheme of reconstruction or amalgamation of a company’s business will also be relaxed. Currently the companies which are party to the scheme must be resident in the UK. In future the relief will focus on whether the assets transferred remain within the scope of corporation tax on chargeable gains, rather than the residence of the companies.
5. The loss and gain buying rules that prevent groups of companies from bringing together losses and gains which did not accumulate within the same group will be aligned with the major changes. They will focus on companies joining the worldwide group and assets falling within the UK tax net. These rules will commence on Budget day.
6. There are a number of other consequential changes which carry over this change of approach.
1. Companies can transfer assets on a tax neutral basis in a number of circumstances.
Intra group transfers
2. The most important rules allow transfers of assets on a no gain/no loss basis within a group. These rules have allowed a group to bring together gains and losses in a single company.
3. A group exists, broadly where one company owns 75% of the other, or a third company owns 75% of each of them. Membership of a group is presently restricted to companies resident in the UK and to benefit from these rules multinational companies need to have a structure that concentrates their UK companies under a single UK resident company, regardless of whether that is the best commercial arrangement.
4. In addition it is not presently possible for non resident companies within the charge to corporation tax on the profits of a trade carried on through a branch or agency in this country to transfer assets on a no gain/no loss basis to or from fellow group members.
5. The changes to the rules will mean that the country of residence no longer matters when identifying a group of companies and assets may now be transferred within the worldwide group on a tax neutral basis if the assets stay within the charge to UK corporation tax on chargeable gains.
Schemes of reconstruction or amalgamation
6. Transfers of assets are on a no gain/no loss basis where one company disposes of the whole or part of its business to another company as part of a scheme of reconstruction or amalgamation. The changes will mean that it does not matter if either party to the scheme is not resident in the UK as long as the assets of the business transferred remain within the scope of UK corporation tax on chargeable gains. This change will allow a business to be transferred on a no gain/no loss basis from a non resident company to another non resident company, as long as the business continues in the UK, or for it to be similarly transferred from a UK resident company to a non resident, or vice versa, subject to the same condition.
Related Budget Notes
7. Instead of transferring an asset from one company to another to set off gains and losses on different assets held in the group it will now be possible to elect that a disposal of an asset should be treated as made by a different member of the group; details are in Budget Note REVBN2G.
8. Changes to rules dealing with group relief for groups and consortia have also been announced today; details are in Budget Note REVBN2A.
9. The costs of these changes are estimated to be £10 million in 2000 – 01 and negligible thereafter.
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