Capital Gains – Degrouping charge
HMRC have issued a business brief following a recent Court of Appeal decision concerning CGT degrouping charges. This case explored the degrouping charge when a company leaves a group of companies and owns an asset which had been acquired by another group company. The decision by the Court of Appeal confirmed that the exception of the degrouping charge for associated companies applies where both the transferor and the transferee companies are associated at the time of the transfer and when they leave the group.
HMRC received many queries following the decision and wanted to clarify their view of what it means to be associated companies for the purposes of the exception. The brief considers what constitutes ‘two or more companies’ and the minimum number of companies required to establish a group relationship.
HMRC give an example where transferor A and transferee B can only be considered to form a group by reference to some other company C at the time of the transfer then A, B and C must also form a group at the time they leave. That is the ‘sub-group’ to be considered. This type of situation can arise when A and B are sibling subsidiaries of C.