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Finance Act 2012

Section 181: Transfers Within a Group by Companies Carrying on Ring Fence Trade

Summary

1.Section 181 amends section 171A of the Taxation of Chargeable Gains Act 1992 (TCGA 1992), which provides an election to transfer a gain or loss from one company to another member of the group. This section restricts the scope of section 171A. Under the current law where there is a transfer of a ring fence chargeable gain from a ring fence company to a non-ring fence company the ring fence gain is not subject to supplementary charge, because the non-ring fence company does not fall within the scope of the supplementary charge.

2.This section amends section 171A to ensure that an election cannot be made to transfer a ring fence chargeable gain from a company carrying on a ring fence trade to a company not carrying on a ring fence trade.

3.This section has effect in relation to chargeable gains accruing, or treated as accruing under section 197(4), in chargeable periods ending on or after 6 December 2011.

4.Where a chargeable period begins before 6 December and ends on or after that date (“the straddling period”) this section has effect as if so much of the straddling period as falls before 6 December, and so much of that period as falls on or after that date were separate chargeable periods.

Details of the Section

5.Subsection (3) inserts subsections (4A) and (4B) into section 171A TCGA 1992.

6.Subsection (4A) provides that an election cannot be made to transfer a ring fence chargeable gain from a company carrying on a ring fence trade to a company not carrying on a ring fence trade.

7.Subsection (4B) provides the definitions of “ring fence chargeable gain” and “ring fence trade”.

Background Note

8.From 1 April 2000 to 20 July 2009 it was possible for two companies (“A” and “B”) which were members of a group to make a joint election whose effect was that a disposal by one member of the group A to a person outside the group (“C”) would be treated as a disposal by A to B under the no gain/no loss rules in section 171(1) TCGA 1992 and then from B to C.

9.The legislation was changed significantly in Finance Act 2009 (FA 2009) and the effect of an election was altered.

10.Since the changes made by FA 2009 and now included within section 171A TCGA 1992, the effect of an election has been that an amount of a chargeable gain or allowable loss is treated as accruing in another group company. As a result under an election under section 171A the transferee company cannot be deemed to carry on a ring fence trade, and so the supplementary charge does not necessarily apply.

11.This section amends section 171A TCGA 1992 to ensure that an election cannot be made to transfer a ring fence chargeable gain from a company carrying on a ring fence trade to a company not carrying on a ring fence trade and so not subject to the supplementary charge.

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