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:

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 in order to claim rollover relief.

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 period capital loss can be transferred between companies in a gains group.