home | news | site index

CLAUSE 77: DEGROUPING CHARGE: TRANSITIONAL RELIEF

SUMMARY

This Clause removes uncertainty about the application of transitional rules in Schedule 29 Finance Act 2000 when a company ceases to be a member of a group of companies.  It ensures the rules governing asset transfers within a group cannot trigger a chargeable gain when a company is transferred from the old group but remains within the new group.

DETAILS OF THE CLAUSE

1.      Clause 77 introduces a new paragraph 47 to the transitional provisions in Part III of Schedule 29 Finance Act 2000.  The new paragraph is deemed to have been enacted at the same time as Schedule 29.

New Paragraph 47

2.      Sub-paragraph (1) deems the following amendments to have effect with regard to section 179 Taxation of chargeable Gains Act 1992 as it applied before 1 April 2000.

3.      Sub-paragraph (2) ensures that where a company would be treated for the purposes of section 179 Taxation of Chargeable Gains Act 1992 as leaving an old group, there will be no degrouping charge if it remains a member of a new, wider world-wide group unless and until such time as it leaves that new group.

4.      Sub-paragraph (3) ensures that a company can move between old groups within the new group without triggering a degrouping charge.

5.      Sub-paragraph (4) operates to ensure that a company leaving the old group and the new group on the same occasion can be treated as leaving a group only once.

6.      Sub-paragraph (5) defines membership of an old and new group.  An old group is a group as defined before Finance Act 2000 Schedule 29 removed the rule that only companies resident in the UK could be members of a group.  A new group is a group as defined after the removal of that restriction.

7.      Sub-paragraph (6) ensures that a subsidiary cannot cease to be a member of a group by virtue of the widening of the group definition in Finance Act 2000, if as a result of the changes, an old group becomes a part of a new, worldwide group because the principal company of the old group is a subsidiary of a company which is not resident in the UK.  It operates so that provided the subsidiary remains a subsidiary of the principal company of the old group, then it will remain a subsidiary member of the new group. If the old principal company leaves the new group without the subsidiary then the normal group rules apply and the subsidiary will have to pass the group test in its own right.

8.      Sub-paragraph (7) provides definitions in relation to references elsewhere in the paragraph to  the “new” section 179 and the “old” and “new” sections 170 Taxation of Chargeable Gains Act 1992

9.      Sub-paragraph (8) ensures that this clause is interpreted with regard to section 170 Taxation of Chargeable Gains Act 1992.

BACKGROUND NOTE

10. Changes to the chargeable gains rules for groups of companies in Finance Act 2000 widened the group definitions in section 170 TCGA to include companies that are not UK resident.  Prior to this only companies resident in the UK could be members of a group.

11. Transitional rules in paragraph 46 of Schedule 29 FA2000 were intended to ensure that there would be no degrouping charge under section 179 Taxation of Chargeable Gains Act 1992 when a company was transferred out of an old, UK, group but within the new, wider, group, but there has been some uncertainty about how the rules operate.

12. We are content that Paragraph 46 provides the result that where there has been an asset transfer prior to the 1 April 2000 and a company that was previously the principal company of the old group leaves the world-wide group without the subsidiary company that transferred the asset, there is no charge under section 179 TCGA.

13. Paragraph 47 ensures that there will be no capital gains charge in respect of assets transferred before 1 April 2000 within the old group (which could only include companies resident in the UK) where a subsidiary company holding such assets leaves the old group on or after 1 April 2000 but remains within the new world-wide group.  A charge may arise when the company holding the asset subsequently leaves the new, world-wide, group within six years of the transfer of the asset within the old group and still holds the asset at the time of leaving the new group.

14. This clause, being entirely relieving, will be deemed to have effect from 1 April 2000, the date from which last year’s changes were generally effective.