Test your understanding: answers
(1). Reasons to transfer a chargeable gain from HO Ltd to LF Ltd:
A 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.
B LF Ltd has capital losses brought forward.
This is a valid reason.
C 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 year capital loss can be transferred between companies in a gains group.