424 Effect of arrangements for transfer of company to another group, etc

Summary

This section is designed to prevent an abuse of group relief where, for example, because a parent company cannot, by reason of an insufficiency of profits, benefit from capital allowances or losses of a subsidiary, it transfers the subsidiary to another group in a position to benefit by way of group relief from the subsidiary’s losses, etc. When the subsidiary’s losses, etc have been stripped the subsidiary reverts to the original group. The effect of the section is that where any arrangements are made by which a company may be detached from one group relationship and joined to another group or where it may be controlled from outside the group the company is to be treated as having terminated the group relationship. The same approach with certain necessary modifications is applied to consortia.

Details

Definitions

(1) “third company” is, in the case of a group, any company outside the original group and, in the case of a consortium, any company other than the trading company or a holding company of which the trading company is a 90 per cent subsidiary and which is itself owned by the consortium.

“control” has the meaning given in section 11.

Successions

(2) A company succeeds to a trade or a part of a trade of another company where section 400 (company reconstructions without change of ownership) applies or the 2 companies are connected with each other (see section 10).

Artificial transfer of company from one group to another

(3) Where any arrangements (whether in writing or not) are made by which a company or its trade is detached from one group and joined to another, or by which control of the company may be moved outside the group or by which the company’s trade may be taken over by a third company, the company is to be treated as not being a member of the first group.

(4) Group relief is not allowed for losses, etc of a trading company which is owned by a consortium or is a 90 per cent subsidiary of a holding company owned by a consortium if there are arrangements by which —

• the trading company may become a 75 per cent subsidiary of a third company (it would then be prevented by section 411(2) from surrendering its loses, etc to the consortium),
• control of it may be taken over by any person or persons who hold less than 50 per cent of its ordinary shares,
• any person or persons may obtain control of 75 per cent or more of the voting rights in the trading company (this would give control, as defined in section 11, of that company), or
• the trading company’s trade may be taken over by a third company.

(5) These restrictions apply equally to a trading company and to a holding company of a trading company where the holding company is owned by a consortium.

Relevant Date: Finance Act 2019