Taxation of Chargeable Gains Act 1992, section 171

Transfers within a group: general provisions

Part VI Companies, oil, insurance etc.

[F1286 (1)Where—

(a) a company (“company A”) disposes of an asset to another company (“company B”) at a time when both companies are members of the same group, and

(b)the conditions in subsection (1A) below are met,

company A and company B are treated for the purposes of corporation tax on chargeable gains as if the asset were acquired by company B for a consideration of such amount as would secure that neither a gain nor a loss would accrue to company A on the disposal.

(1A)The conditions referred to in subsection (1)(b) above are—

(a)that company A is resident in the United Kingdom at the time of the disposal, or the asset is a chargeable asset in relation to that company immediately before that time, and

(b)that company B is resident in the United Kingdom at the time of the disposal, or the asset is a chargeable asset in relation to that company immediately after that time.

For this purpose an asset is a “chargeable asset” in relation to a company at any time if, were the asset to be disposed of by the company at that time, any gain accruing to the company would be a chargeable gain [F1287 chargeable to corporation tax as a result of section 2B(3) or (4). F1287,F1286]]

[F1288 (1B)If—

(a)company A is deemed under section 25(3) to have previously disposed of the asset, but

(b)no gain or loss accrued on that deemed disposal as a result of section 25ZA(2),

that deemed disposal is to be ignored in applying subsection (1) of this section in relation to company B.F1288]

(2)Subsection (1) above shall not apply where the disposal is—

(a)a disposal of a debt due from [F1289company BF1289] effected by satisfying the debt or part of it; or

(b)a disposal of redeemable shares in a company on the occasion of their redemption; or

F1290 (ba). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c)a disposal by or to an investment trust; or

[F1291 (cc)a disposal by or to a venture capital trust; orF1291]

[F1292 (cd)a disposal by or to a qualifying friendly society; orF1292]

(d)F1293a disposal to a dual resident investing company; ... [F1294; or

(da)a disposal by or to a company [F1295 which is, or is a member of, a UK REIT within the meaning of Part 12 of CTA 2010F1295] (Real Estate Investment Trusts);F1294][F1296 or

(db)a disposal by company A in fulfilment of its obligations under an option granted to company B at a time when those companies were not members of the same group;F1296]

F1293 (e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

and the reference in subsection (1) above to [F1297company AF1297] disposing of an asset shall not apply to anything which under section 122 is to be treated as a disposal of an interest in shares in a company in consideration for a capital distribution (as defined in that section) from that company, whether or not involving a reduction of capital.

(3)Subsection (1) above shall not apply to a transaction treated [F1298by section 127 as it applies by virtue of section 135F1298] as not involving a disposal by [F1299company AF1299] .

F1300 (3A). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4)For the purposes of subsection (1) above, so far as the consideration for the disposal consists of money or money’s worth by way of compensation for any kind of damage or injury to assets, or for the destruction or dissipation of assets or for anything which depreciates or might depreciate an asset, the disposal shall be treated as being to the person who, whether as an insurer or otherwise, ultimately bears the burden of furnishing that consideration.

[F1301 (5) In subsection (2)(cd) above “qualifying friendly society” means a company which is a qualifying society for the purposes of [F1302 section 165 of the Finance Act 2012 F1302] (incorporated friendly societies entitled to exemption from income tax and corporation tax on certain profits). F1301]

[F1303 (6)Subsection (1) above applies notwithstanding any provision in this Act fixing the amount of the consideration deemed to be received on a disposal or given on an acquisition.

But where it is assumed for any purpose that a member of a group of companies has sold or acquired an asset, it shall be assumed also that it was not a sale or acquisition to which this section applies.F1303]

Definitions used in section 171 21

company

“company” includes any body corporate or unincorporated association but does not include a partnership, and shall be construed in accordance with section 99 ;

Defined in s.288(1) · see it in the full Act

(5) In this paragraph “company” and “group” shall be construed in accordance with section 170(2) to (9).

Defined in Sch.2 para.5(5) · see it in the full Act
assets

(a) the reference to “assets” were a reference to “property”, and

Defined in Sch.4ZA para.22(2) · see it in the full Act
asset

In this sub-paragraph “asset” includes part of an asset.

Defined in Sch.8B para.6(1) · see it in the full Act
group

(5) In this paragraph “company” and “group” shall be construed in accordance with section 170(2) to (9).

Defined in Sch.2 para.5(5) · see it in the full Act
company A

(3) Where sub-paragraph (1) applies to extend the period for which a company (“company A”) is treated as having held any shares, that company shall be treated for the purposes of this Part as having had at any time the same entitlement—

(a) to shares, and

(b) to any rights enjoyed by virtue of holding shares,

Defined in Sch.7AC para.10(3) · see it in the full Act

(a) a company (“company A”) disposes of an asset by way of a material transaction, and

Defined in s.19(6) · see it in the full Act
company B

(c) the disposal by company A is to a person who is connected with another company (“company B”) which at some time after 19th March 1985 disposed of the asset by way of an inter-group transfer, and

Defined in s.19(6) · see it in the full Act
tax

and for the purposes of this definition “tax” means capital gains tax, corporation tax or income tax.

Defined in s.16A(2) · see it in the full Act
the residents

(b) if 2 or more of them are then resident ... in the United Kingdom (“the residents”) it shall be treated as being as many equal capital payments as there are residents and each of them shall be treated as receiving one of the payments.

Defined in s.96(4) · see it in the full Act
resident

“resident” means resident in accordance with the statutory residence test in Part 1 of Schedule 45 to the Finance Act 2013 ;

Defined in s.288(1) · see it in the full Act
the deemed disposal

(5) If the number of replacement securities is less than the number of securities which B is treated as having acquired, L is to be treated for the purposes of this Act as having made a disposal, at the insolvency date, of the difference (“the deemed disposal”).

Defined in s.263CA(5) · see it in the full Act
shares

“shares” includes stock;

Defined in s.288(1) · see it in the full Act

(5) In this paragraph, except in paragraphs (a) to (c) of sub-paragraph (6), “shares” includes an interest in shares.

Defined in Sch.7AC para.10(5) · see it in the full Act

(b) “shares” includes securities,

Defined in Sch.7 para.4(2) · see it in the full Act
the shares

(5) In sub-paragraphs (3) and (4) and in the following provisions of this Schedule references to “the shares” are to the shares referred to in sub-paragraph (1)(a).

Defined in Sch.7ZB para.1(5) · see it in the full Act

(a) references to “the shares” shall be construed in accordance with sub-paragraph (1) above, and

Defined in Sch.5B para.13(12) · see it in the full Act
investment trust

“investment trust” has the meaning given by section 1158 of CTA 2010 ;

Defined in s.288(1) · see it in the full Act
venture capital trust

“venture capital trust” has the same meaning as in Part 6 of ITA 2007 ;

Defined in s.288(1) · see it in the full Act
dual resident investing company

“dual resident investing company” has the meaning given by section 404 of the Taxes Act;

Defined in s.288(1) · see it in the full Act
UK REIT

(3) In this paragraph “UK REIT” has the same meaning as in Part 12 of CTA 2010.

Defined in Sch.5AAA para.35(3) · see it in the full Act
CTA 2010

“CTA 2010” means the Corporation Tax Act 2010 ;

Defined in s.288(1) · see it in the full Act
the option

(a) a share option (“the option”) has been granted to an individual—

(i) in accordance with the provisions of a Schedule 4 CSOP scheme, and

(ii) by reason of the individual’s office or employment as a director or employee of a company, and

(b) shares (“the relevant shares”) are acquired by the exercise of the option.

Defined in Sch.7D para.11(3) · see it in the full Act
capital distribution

In this sub-paragraph “capital distribution” has the same meaning as in section 122.

Defined in Sch.5AA para.4(4) · see it in the full Act
qualifying

(a) is a “qualifying” corporate bond if it is issued after 13th March 1984; and

Defined in s.117(7) · see it in the full Act
income

(6) Sub-paragraphs (4) and (5) above apply for the purposes of paragraph (b) of sub-paragraph (1) above as they apply for the purposes of paragraph (a), reading “income” for “property".

Defined in Sch.5 para.2(6) · see it in the full Act

Cases considering section 171 5

DMWSHNZ Ltd v HM Revenue and Customs

[2015] EWCA Civ 1036 · 20 October 2015Limits

Confirms the statutory context for tax-neutral transfers within a group and the relationship between section 171 and the notional transfer mechanism in section 171A. (see paras [14]-[17]) Applies the tax-neutral treatment of qualifying asset transfers between group companies, which section 171A deems to apply to the notional transfer where its conditions are satisfied. (see paras [14]-[17]) Limits the general intra-group transfer rule by excluding disposal of a debt due from the transferee when effected by satisfying the debt. The provision did not establish that repayment involved an acquisition by the debtor. (see paras [37]-[39], [51]) Confirms that a statutory deeming of the person to whom a disposal is made operates only for section 171(1), not for the wider Act or section 171A. (see para [16])

Johnston Publishing (North) Ltd v Revenue and Customs

[2008] EWCA Civ 858 · 23 July 2008

Cited only. Applies the in-group no-gain/no-loss rule to transfers between group members. The judgment uses that rule as the basis for explaining why the later degrouping charge is necessary. (see paras [2]-[3]; [24]; [28]-[29])

Ardagh Group SA v Pillar Property Group Ltd

[2012] EWHC 3649 (Ch) · 21 December 2012

The judgment describes section 171 as enabling intra-group asset transfers without an accruing gain or loss and treats its operation as part of the statutory machinery through which gains could be attributed within the group (see paras [6], [27]).

What each judgment says about section 171 is in the case-law panel in the full Act.

Amendments and notes

37 notes from legislation.gov.uk

Amendments

  1. F1286S. 171(1)(1A) substituted for s. 171(1) (with effect in accordance with Sch. 29 para. 2(6) of the amending Act) by Finance Act 2000 (c. 17), Sch. 29 para. 2(2) (with Sch. 29 para. 46(5))
  2. F1287Words in s. 171(1A) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 61(2)
  3. F1288S. 171(1B) inserted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 61(3)
  4. F1289Words in s. 171(2)(a) substituted (with effect in accordance with Sch. 29 para. 2(6) of the amending Act) by Finance Act 2000 (c. 17), Sch. 29 para. 2(3)(a) (with Sch. 29 para. 46(5))
  5. F1290S. 171(2)(ba) omitted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by virtue of Finance Act 2019 (c. 1), Sch. 1 para. 61(4)
  6. F1291S. 171(2)(cc) inserted (with application in accordance with s. 135(4) of the amending Act) by Finance Act 1998 (c. 36), s. 135(1)
  7. F1292S. 171(2)(cd) inserted (with application in accordance with s. 136(5) of the amending Act) by Finance Act 1998 (c. 36), s. 136(2)
  8. F1293S. 171(2)(e) and preceding word repealed (with effect in accordance with s. 251(1)(a)(7) of the amending Act) by Finance Act 1994 (c. 9), s. 251(7)(b), Sch. 26 Pt. VIII(1)
  9. F1294S. 171(2)(da) and preceding word inserted (19.7.2006) by Finance Act 2006 (c. 25), s. 135
  10. F1295Words in s. 171(2)(da) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 243 (with Sch. 2)
  11. F1296S. 171(2)(db) and preceding word inserted (with effect in accordance with Sch. 5 para. 10(2) of the amending Act) by Finance Act 2007 (c. 11), Sch. 5 para. 10(1)
  12. F1297Words in s. 171(2) substituted (with effect in accordance with Sch. 29 para. 2(6) of the amending Act) by Finance Act 2000 (c. 17), Sch. 29 para. 2(3)(b) (with Sch. 29 para. 46(5))
  13. F1298Words in s. 171(3) substituted (with effect in accordance with Sch. 9 paras. 7, 8 of the amending Act) by Finance Act 2002 (c. 23), Sch. 9 para. 5(10)
  14. F1299Words in s. 171(3) substituted (with effect in accordance with Sch. 29 para. 2(6) of the amending Act) by Finance Act 2000 (c. 17), Sch. 29 para. 2(4) (with Sch. 29 para. 46(5))
  15. F1300S. 171(3A) omitted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 24 paras. 9(b), 12
  16. F1301S. 171(5) inserted (with application in accordance with s. 136(5) of the amending Act) by Finance Act 1998 (c. 36), s. 136(3)
  17. F1302Words in s. 171(5) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 18 para. 16
  18. F1303S. 171(6) added (with effect in accordance with Sch. 29 para. 2(6) of the amending Act) by Finance Act 2000 (c. 17), Sch. 29 para. 2(5) (with Sch. 29 para. 46(5))

Modifications

  1. C304Ss. 170-192 restricted (27.7.1999) by Commonwealth Development Corporation Act 1999 (c. 20), Sch. 3 paras. 1, 4(1)
  2. C305Ss. 170-181 restricted (12.1.2000) by Greater London Authority Act 1999 (c. 29), ss. 419(3), 425(2); S.I. 1999/3434, art. 2
  3. C308Ss. 170-181 modified (5.10.2004) by Energy Act 2004 (c. 20), s. 198(2), Sch. 9 para. 35(a) (with s. 38(2)); S.I. 2004/2575, art. 2(1), Sch. 1
  4. C317S. 171 excluded (27.7.1993 with application as mentioned in s. 165(1)) by 1993 c. 34, s. 169, Sch. 17 para. 7(2)(b)
  5. C318Ss. 171, 172 restricted (with effect in accordance with s. 131(4) of the amending Act) by Finance Act 1995 (c. 4), s. 131(1)(2)(a)
  6. C319S. 171 excluded (with effect in accordance with reg. 1(2) of the amending S.I.) by The Taxation of Securitisation Companies Regulations 2006 (S.I. 2006/3296), regs. 1(1), 18(1)
  7. C320S. 171 excluded (with effect in accordance with reg. 1(2) of the affecting S.I.) by The Taxation of Insurance Securitisation Companies Regulations 2007 (S.I. 2007/3402), regs. 1(1), 9(2)
  8. C321S. 171 excluded (with effect in accordance with s. 1329(1) of the affecting Act) by Corporation Tax Act 2009 (c. 4), ss. 830(1), 1329(1) (with Sch. 2 Pts. 1, 2)
  9. C322S. 171 modified (with effect in accordance with s. 1184(1) of the affecting Act) by Corporation Tax Act 2010 (c. 4), ss. 601, 1184(1) (with Sch. 2)
  10. C323S. 171 excluded (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 118(6)(c) (with s. 147, Sch. 17)
  11. C324S. 171 excluded (with effect in accordance with reg. 1(2) of the amending S.I.) by The Risk Transformation (Tax) Regulations 2017 (S.I. 2017/1271), regs. 1(1), 9
  12. C325S. 171 excluded (24.2.2022) by Finance Act 2022 (c. 3), Sch. 2 para. 33(3)(a)
  13. C326S. 171(1) excluded (retrospective to 11.1.1994) by Finance Act 1994 (c. 9), s. 252(3), Sch. 24 para. 2(3)
  14. C327S. 171(1) excluded (retrospective to 11.1.1994) by Finance Act 1994 (c. 9), s. 252(3), Sch. 24 para. 7(3)
  15. C328S. 171(1) excluded (retrospective to 11.1.1994) by Finance Act 1994 (c. 9), s. 252(3), Sch. 24 para. 25(3)
  16. C329S. 171(1) restricted (8.11.1995) by Atomic Energy Authority Act 1995 (c. 37), Sch. 3 para. 4(1)
  17. C330S. 171(1) excluded (24.7.1996) by Broadcasting Act 1996 (c. 55), s. 149(1), Sch. 7 para. 2(2) (with Sch. 7 para. 9(1))
  18. C331S. 171(1) excluded (1.2.2001) by Transport Act 2000 (c. 38), s. 275(1), Sch. 7 paras. 2(4), 20(5); S.I. 2001/57, art. 3(1)
  19. C332S. 171(2)(cc) excluded (with effect in accordance with reg. 1(2)(b) of the amending S.I.) by The Venture Capital Trust (Winding up and Mergers) (Tax) Regulations 2004 (S.I. 2004/2199), regs. 1(1), 12(2)