CG45425 | The degrouping charge: how and when a gain or loss accrues, company leaving a group before 19 July 2011 or on or after that date otherwise than on a disposal of shares

TCGA92/S179 (4)

Where a degrouping charge does not result in an adjustment to the consideration on a disposal of the shares in company A by another group member, as described in CG45420, then the gain or loss will arise on the deemed disposal of the transferred asset by company A. The calculation of the gain or loss will generally result from a deemed market value disposal at the time immediately following the acquisition by company A but the gain or loss accrues at the later of

• the time of the deemed disposal

• the time immediately after the beginning of the accounting period in or at the end of which the degrouping event takes place.

The date of the deemed disposal at market value for the purposes of calculating the gain or loss may be modified by the Substantial Shareholding Exemption rules from 1 April 2002. Where a disposal of the asset immediately before company A leaves the group would have been exempt as a result of the exemption then the deemed date of disposal and reacquisition is to be treated as taking place on the same day as the company A left the group, immediately before it did, TCGA92/Sch7AC/Para38. This ensures that if it is possible for the exemption to apply at either the date of the asset transfer or at the time the asset leaves the group, then the exemption will apply.

Example

Company A is the principal company of a capital gains group and in January 1999 transfers to its subsidiary, B, its 20% shareholding in a company (X) that was not a member of the capital gains group. On 31 January 2003 B leaves the A group taking with it the X shares transferred from A. There is therefore a potential charge on B under section 179(3) in respect of those shares. Under the substantial shareholdings legislation any gain accruing if B disposed of the X shares acquired from A immediately before the degrouping event would be exempt.

For the purposes of TCGA92/179(3) the deemed date of B’s disposal and reacquisition of the shares in X is 31 January 2003. This disposal is deemed to have taken place immediately before B left the A group. As the substantial shareholding is exempt, any gain arising under section 179(3) on the deemed disposal is exempt and any loss is not allowable.

Note that it was possible for a group to elect to apply the changes to degrouping charge rules made in Finance Act 2011 from 1 April 2011. Whenever the above guidance refers to 19 July 2011 it should be taken as referring to 1 April 2011 for a company in a group that has made such an election.