ACCA ATX ^UK Syllabus A4. Corporation Tax - 75% gains group - Notes ^{2 / 2}

What is a 75% chargeable gains group?

The companies in a 75% capital gains group are described as being connected.

This is a group in which members can:

1. Transfer assets at no gain or no loss. 

   The asset will be transferred between group members at its indexed cost (cost + indexation until date of transfer). 

   This is similar to husband/wife or civil partner transfers for individuals.

2. Obtain group rollover relief. 

   Therefore one member of a group can sell a qualifying asset, and if another member purchases a qualifying asset within the time limit, the chargeable gain on the first asset can be rolled over against the purchase of the second asset of the other group member. 

   (Rollover relief conditions must still be satisfied).

3. Chargeable gains or capital losses can be given to group members freely, to reduce their taxable total profits as necessary. 

   An asset does not have to be physically moved and sold by another group member for a chargeable gain or capital loss to arise on them, the gain or loss can simply be transferred.

How does a company obtain membership into a 75% gains group?

• The parent company must hold a direct or indirect effective interest of more than 50% in each subsidiary.

• Subsidiary companies must own a direct interest of 75% of sub-subsidiary companies.

Illustration:

A Ltd. owns 90% of B Ltd. 

B Ltd. owns 75% of C. Ltd. 

Which companies are members of this 75% gains group?

Solution:

All 3 companies are members. 

This is because A Ltd. owns a direct interest of 90% in B Ltd. and an indirect interest of 67.5% (90% * 75%) in C Ltd. 

Therefore, the parent effective interest is satisfied and the sub-subsidiary condition is satisfied.

Illustration:

A Ltd. owns 100% of B Ltd. 

B Ltd. owns 75% of C. Ltd. 

C. Ltd. owns 75% of D Ltd. 

Which companies are members of this 75% gains group?

Solution:

All 4 companies are members.

• This is because A Ltd. owns a direct interest of 100% in B Ltd., an indirect interest of 75% (100% * 75%) in C Ltd, and an indirect interest of 56.25%(100% * 75% * 75%) in D Ltd.

• Additionally, B Ltd. owns 75% in the sub-subsidiary C Ltd.

  Finally, C Ltd. owns 75% in the sub-subsidiary D Ltd.

• Therefore, the parent company condition is satisfied and the sub-subsidiary condition is satisfied.

Illustration:

Zooby Ltd. and Scrappy Ltd. are members of a 75% group. Zooby Ltd. sold a qualifying asset for £500,000 and this resulted in a capital gain of £100,000.

• Scrappy Ltd. spent £650,000 on a qualifying asset 6 months after the sale of of Zoooby Ltd.’s asset.

What is the base cost of Scrappy Ltd.’s asset?

Solution:

As group rollover relief is available due to both assets being qualifying and purchased within the necessary time limit, the base cost of Zooby Ltd.’s asset will be:

No chargeable gain will result for Zooby Ltd. at present

Illustration:

If two companies are members of a capital gains group and one company transfers an asset to another. 

Will this asset be transferred at its original cost or indexed cost?

Solution:

Indexed cost