CG45310 - No gain/no loss transfers in groups: non-UK resident companies

TCGA92/S171(1A)

From 1 April 2000 a capital gains group includes non-UK resident members of the group. TCGA92/S171(1A) ensures that the no gain/no loss rule applies only where the transferred asset remains within the charge to UK corporation tax. It requires that the transferor and transferee companies are:

  • resident in the UK and therefore within the charge to UK corporation tax generally, or
  • not UK resident, but within the charge to corporation tax on chargeable gains in respect of the asset.

The second requirement will be met where any gain on the disposal of the asset would be chargeable to corporation tax by virtue of TCGA92/S2B(3) or (4). This will be the case where –

  • the asset is situated in the UK and is held or used for the purposes of a trade carried on in the UK by the non-resident company through a permanent establishment, TCGA92/S2b(3) (see CG42100+), or
  • for disposals on or after 6 April 2019 the non-UK company is within the charge to corporation tax on disposals of UK property and assets that derive 75% or more of their value from UK property, TCGA92/S2b(4).

For disposals before 6 April 2019, TCGA92/S171(1A) was worded slightly differently and contained a definition of “chargeable asset” by reference to TCGA92/S10B, which has been rewritten as TCGA92/S2B(3) in TCGA92/S171(1A). 

Transfers to group companies in European Economic Area (EEA) member states

In early 2019 a decision of the First-tier Tax Tribunal held that in some circumstances the operation of TCGA92/S171 was not compatible with EU law because it did not provide an option to defer payment of the tax that arises on a transfer to an EU group member where a similar transfer to a UK group member would not trigger a gain.  The appeal came before the Upper Tribunal which referred the matter to the Court of Justice of the European Union (CJEU) which found that the rule does comply with EU law.

In order to provide certainty to UK business before the matter was finally decided, Finance Act 2020 introduced Schedule 3ZC to the Taxes Management Act to give the option to defer payment.  The deferral option is available for liabilities that arise on capital gains and other corporation tax transfer rules including those for loan relationships and intangible assets.  It applies to transfers to group members in the EEA which consists of EU members plus Iceland, Liechtenstein and Norway.  

The CJEU's ruling means the provision is no longer necessary.  The UK government has stated its commitment to review and remove unnecessary EU related tax provisions, and this provision will be repealed in due course. This may be done by regulations made under paragraph 5 of Schedule 7 Finance Act 2020.

The option is available for corporation tax payable for accounting periods that end on or after 10 October 2018.

Case teams requiring advice on deferral of tax under this measure should contact CT Structure, Capital Gains Technical Group.