Tax Journal

Back to basics: Intra-group reorganisations

6 December 2013

This article considers group reorganisations involving the transfer of businesses, shares or individual assets between members of a group. A group may wish to reorganise for a number of commercial reasons, commonly in anticipation of a sale or after an acquisition. We look at the main tax issues and particular issues arising from pre-sale hive-downs and debt reorganisations.

Howard Murray and Sara Stewart take a look at the main tax issues as well as any other particular issues arising from pre-sale hive-downs and debt reorganisations.

General tax considerations

The tax position for simple intra-group transfers is detailed below.

Corporation tax on chargeable gains and intangibles: The transfer of capital assets (such as shares in a group company and property assets) will be on a no gain/no loss basis if within a chargeable gains group under TCGA 1992 s 171. If the transfer is not within a chargeable gains group it is likely that the connected party rules will apply so that market value will be imputed (TCGA 1992 s 18). This may lead to a tax charge for the transferee. It may be, though, that the group has access to capital losses, or can benefit from the substantial shareholdings exemption (SSE) in TCGA 1992 Sch 7AC.

The position is similar as regards the transfer of goodwill, intellectual property and other intangibles under the tax regime for such assets introduced with effect from 1 April 2002 (CTA 2009 Part 8) or the ‘post-2002’ intangible asset regime.

Where shares in a group company are transferred in consideration for the issue of shares by the transferee company, the transfer will not be within the no gain/no loss rules in TCGA 1992 s 171 but should instead be within the share for share exchange rules in TCGA 1992 s 135 (assuming the exchange satisfies the bona fide test in TCGA 1992 s 138) (TCGA 1992 s 171(3)). The effect of this is that the transferor will obtain a base cost in the new shares equal to the base cost in the shares in the company transferred. However, the transferee company will obtain ...

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