Gains Group Membership
A GAINS GROUP consists of a PARENT COMPANY and its 75% SUBSIDIARY and also the 75% SUBSIDIARY OF THEIR SUBS. This second criteria is CRITICAL. A PARENT need only have an EFFECTIVE INTEREST of >50% in any SUB-SUBSIDIARY.
A company can only be in ONE GAINS GROUP.
When dealing with GAINS GROUPS it’s important to consider the availablility of INDEXATION ALLOWANCE.
What Are the Implications of Being in a Gains Group?
There are special tax rules that cover:
- TRANSFER of ASSETS within the group and subsequent disposals
- DEGROUPING CHARGES for companies leaving the group.
- REALLOCATION of GAINS or LOSSES
- ROLLOVER RELIEF.
Transfer of Assets within a Gains Group
When an asset is sold to another GAINS GROUP member:
There is NO GAIN/NO LOSS TRANSFER (REGARDLESS OF ANY ACTUAL PRICE PAID).
The receiving company acquires the asset at a BASE COST EQUAL TO ITS ORIGINAL COST PLUS INDEXATION ALLOWANCE UP TO THE POINT OF TRANSFER (OR DEC 2017, IF EARLIER).
This treatment is AUTOMATIC, no election is needed.
A DEGROUPING CHARGE arises when a GROUP COMPANY:
- Leaves a GROUP
- still owning an asset received via a NO GAIN / NO LOSS TRANSFER from another GROUP MEMBER
- WITHIN THE LAST 6 YEARS
The DEGROUPING CHARGE is calculated as follows:
The leaving company is DEEMED to have SOLD and REPURCHASED any assets acquired from other GROUP MEMBERS at MARKET VALUE (MV) on the day of the INTRA-GROUP TRANSFER. NOT on the day the company leaves the GROUP.
|PROCEEDS (MV AT DATE OF INTRA GROUP TRANSFER)||X|
|LESS: COST TO GROUP||(X)|
|LESS: INDEXATION ALLOWANCE (TO DATE OF INTRA GROUP TRANSFER OR DEC 2017 IF EARLIER)||(X)|
|DEGROUPING CHARGE / DEGROUPING LOSS||X/(X)|
The DEGROUPING CHARGE is added to the CONSIDERATION received by the vendor company selling the shares in the company leaving the group.
However, if the company selling the shares benefits from a SUBSTANTIAL SHAREHOLDING EXEMPTION then the consideration received for the sale of shares will NOT be taxable NOR will any DEGROUPING CHARGE.
NOTE: that a DEGROUPING CHARGE ONLY arises when a company leaves a GAINS GROUP. When it is simply a property being sold then there is no degrouping charge but INDEXATION ALLOWANCE may apply when calculating the gain.
Reallocation of Gains / Losses
Companies in a GAINS GROUP can make a JOINT ELECTION to REALLOCATE GAINS / LOSSES between GROUP COMPANIES.
This means that CHARGEABLE GAINS / ALLOWABLE LOSSES can be matched together within ONE COMPANY.
GAINS can be TRANSFERRED to a GROUP COMPANY with CAPITAL LOSSES BROUGHT FORWARD (although there are RESTRICTIONS on PRE-ENTRY CAPITAL LOSSES).
Both companies MUST BE MEMBERS of the GAINS GROUP at the time of the GAIN/LOSS.
The ELECTION can be made within 2 YEARS of the end of the ACCOUNTING PERIOD of disposal outside the group.
The GAINS GROUP is treated as one entity for the purposes of ROLLOVER RELIEF.
Therefore, the GAIN on a disposal of a qualifying asset in one GROUP COMPANY can be rolled over against the purchase of qualifying assets by another group company.
Leaving a Gains Group
A company remains a member of a gains group until the sale completes. This is UNLIKE leaving a GROUP FOR LOSS RELIEF where a company leaves once a sale is agreed.