The no gain/no loss rule in ensures that assets can generally be moved around a group of companies without any immediate capital gains consequences.
This recognises that business activities carried on within the overall economic ownership of a corporate group, within the charge to corporation tax, should, in broad terms, be tax neutral.
This is achieved by fixing both the consideration received for the asset by the transferor and the consideration given for the asset by the transferee.
The transferor has neither chargeable gain nor allowable loss.
The transferee effectively takes over the transferor’s capital gains cost, augmented by indexation allowance as appropriate – see article Indexation Allowance
Therefore, a chargeable gain or allowable loss will accrue only when an asset is disposed of outside the group, or if the transferee company leaves the group within 6 years of the asset being transferred to it – see article Degrouping charge
Corporation tax group relief does not apply to allowable losses so the ability to make no gain/no loss transfers allows groups to bring together gains and losses so that only the overall net gains of a group are taxed. An election can be made to transfer the gain achieves the same effect without the need for any actual transfer – see article Transfer of a gain/loss to a group company