Corporation tax – Groups and chargeable gains for ATX-UK – part 3: self-test answers

Test your understanding: answers

(1). Reasons to transfer a chargeable gain from HO Ltd to LF Ltd:

LF Ltd has purchased a qualifying business asset such that the gain on the asset sold can be rolled over.

This is not a valid reason. The companies in a gains group are treated as a single entity for the purposes of rollover relief, such that there is no need to transfer the gain in order to claim rollover relief.

LF Ltd has capital losses brought forward.

This is a valid reason.

HO Ltd is paying corporation tax at a lower rate than LF Ltd.

This is not a valid reason. Transferring the gain would increase the corporation tax liability in respect of the gain.

(2). A pre-entry capital loss can be used against gains arising on:

  • assets sold by the target company before it was acquired, or
  • assets owned by the target company at the time it was acquired, or
  • assets subsequently purchased by the target company, from non-group companies, for use in its trade.

(3). Statement A is false
The use of pre-entry capital losses is always restricted.

Statement B is false
Any amount of a current period capital loss can be transferred between companies in a gains group.