Revenue Note for Guidance
This section operates in a situation where, on a reconstruction or amalgamation, one resident company takes over the whole or part of the business of another resident company and that other company receives no consideration for the transfer of the business other than the taking over of its liabilities. The section provides that no corporation tax is to be charged in respect of chargeable gains accruing to the transferor company, but the transferee company is to be treated as if it had acquired the assets at the time and the price at which they were acquired by the transferor company. This section does not apply to trading stock and, in the case of the transfer of a specified intangible asset within the meaning of section 291A, companies have the option to disapply the provisions of the section where the acquiring company wishes to claim an allowance under section 284, as applied by section 291A, in respect of the transfer of the asset.
The section does not apply unless the scheme of reconstruction or amalgamation is carried out for bona fide commercial reasons and does not form part of an arrangement whose purpose, or one of its main purposes, is the avoidance of tax.
(1) A “scheme of reconstruction or amalgamation” is the reconstruction of a company or companies or a scheme for the amalgamation of 2 or more companies.
“trading stock” has the meaning set out in section 89.
(2) To qualify for relief, the following conditions must be satisfied:
In these circumstances the asset transferred continues to be within the charge to capital gains tax. The transferring company is not to be subject to any charge to tax on the transfer but the acquiring company is treated as having acquired the asset at the time and for the cost at which it was acquired by the transferring company.
(2A) The transfer from a transferor company of all its assets and liabilities to a successor company in the course of a merger or a division under the Companies Act 2014 will be treated as a transfer of a business and the liabilities of that business, where the transferor company was carrying on a business immediately prior to the transfer.
(3) Where an asset was trading stock for the transferor company or would become trading stock for the transferee company, such an asset is excluded from relief under this section.
(4)(a) This section does not apply in relation to the transfer of a specified intangible asset where both the company transferring the specified intangible asset and the acquiring company so elect by giving notice in writing to the Collector-General not later than 12 months from the end of the accounting period in which the company acquired the asset.
(4)(b) Where an election in accordance with paragraph (a) is made and the transfer is not a transfer to which section 400(6) applies, both the disposal and the acquisition of the asset are treated, for capital gains tax purposes, as having been made at market value.
(4A) The section does not apply to a scheme of reconstruction or amalgamation involving the transfer of the whole or part of a company’s business to another company unless it is shown that the reconstruction or amalgamation is carried out for bona fide commercial reasons and does not form part of an arrangement of which the main purpose, or one of the main purposes, is the avoidance of tax.
Relevant Date: Finance Act 2017