Degrouping charge

If a business sells an asset, this usually results in a chargeable gain.

However, if sold to a group company, it can be transferred on a no gain no loss basis – see article Business assets move intra-group.

If this asset is then disposed of within six years, there will be what is known as a de-grouping charge, which effectively taxes the gain that was avoided at the point of transfer.

The first main condition for the degrouping charge is that a company (referred to as `company A’) acquires an asset from another company in the same group (company B), and leaves that group within the following six years.

The second main condition is that when company A leaves the group:

• either it, or an `associated company’ leaving the group at the same time,
• owns (other than as trading stock),
• the asset, or another asset against which a gain on the first asset has been rolled over.

If these conditions are met, the result is a deemed disposal by the chargeable company as at the time immediately following the intra-group transfer, so reinstating the gain or loss that would have arisen but for the no gain/no loss rule.

Please note that a degrouping charge triggered by a company leaving a group on or before 19 July 2011, it will simply result in a gain or loss accruing to company A. But, for charges triggered following that date, the charge may result in an adjustment to the disposal consideration of the group company that makes a disposal of shares in company A.

Due to the new rules, broadly speaking, a degrouping charge triggered in a company that leaves a group on a disposal of shares that qualifies for the Substantial Share Exemption will not lead to a tax liability – see article Reliefs for chargeable gains.

Where the asset transfer takes place within a sub-group and both company A and company B leave the group on a disposal of that sub-group then no degrouping charge will be triggered.

The degrouping charge includes a special rule for company takeovers -if at any time the principal company of a group becomes a member of another group, the first group and the other group are regarded as the same. This special rule ensures that there is no immediate degrouping charge if company A leaves a group in these circumstances.

There are also some other exceptions, most notably in a 2 company group practice, and with certain mergers and demergers.