Commentary

D2.350 Group capital gains—Depreciatory transactions

Corporate tax
Corporate tax | Commentary

D2.350 Group capital gains—Depreciatory transactions

Corporate tax | Commentary

Group capital gains—Anti-avoidance

D2.350 Group capital gains—Depreciatory transactions

Specific provisions1 operate so as to restrict an allowable loss on a disposal of shares or securities in a company (referred to below as the 'ultimate disposal') where it can be shown that the loss was caused by an earlier 'depreciatory transaction'.

Example 1

R Ltd acquires all the shares in F Ltd for £100,000, this being represented by underlying assets (including goodwill) in the company to this value. Immediately after acquisition, R Ltd procures that F Ltd transfers to it all of its assets intra-group for a nominal price of, say, £1. It then sells the shares in F Ltd to a third party for £1, thereby creating (ignoring the effect of the depreciatory transactions rules) a capital loss of some £99,999.

The provisions apply where in relation to a disposal of shares in, or securities of, a company2:

  1.  

    (a)     the value of the shares or securities has been materially reduced

  2.  

    (b)     the reduction was caused by a depreciatory transaction; and

  3.  

    (c)     the original depreciatory transaction was effected on or after 31 March 1982. For disposals made between 19 July 2011 and 21 November 2017, the original depreciatory transaction had to be effected within the period of six years ending with the date of disposal of the shares or securities in the company3

Disposal for these purposes includes 'deemed' disposals where a negligible value claim is made4. The requirement for the original depreciatory transaction to have been effected within six years ending with the

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